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Monopoly Copyright © 2011 Cengage Learning 15 Figure 1 Computer Operating Systems Copyright © 2010 Cengage Learning Figure 2 Economies of Scale as a Cause of Monopoly Cost Average total cost 0 Quantity of output Copyright © 2011 Cengage Learning Figure 3 Demand Curves for Competitive and Monopoly Firms (a) A competitive firm ’s demand curve Price (b) A monopolist’‘s demand curve Price Demand Demand 0 Quantity of output 0 Quantity of output Copyright © 2011 Cengage Learning Table 1 A Monopoly’s Total, Average and Marginal Revenue Copyright © 2011 Cengage Learning Figure 4 Demand and Marginal Revenue Curves for a Monopoly Price €11 10 9 8 7 6 5 4 3 2 1 0 –1 –2 –3 –4 Demand (average revenue) Marginal revenue 1 2 3 4 5 6 7 8 Quantity of water Copyright © 2011 Cengage Learning Figure 5 Profit Maximization for a Monopoly Costs and Revenue 2. . . . and then the demand curve shows the price consistent with this quantity. B Monopoly price 1. The intersection of the marginal-revenue curve and the marginal-cost curve determines the profit-maximizing quantity . . . Average total cost A Demand Marginal cost Marginal revenue 0 Q QMAX Q Quantity Copyright © 2011 Cengage Learning Figure 6 The Monopolist’s Profit Costs and revenue Marginal cost Monopoly E price B Monopoly profit Average total D cost Average total cost C Demand Marginal revenue 0 QMAX Quantity Copyright © 2011 Cengage Learning Figure 7 The Market for Drugs Costs and revenue Price during patent life Price after patent expires Marginal cost Marginal revenue 0 Monopoly quantity Competitive quantity Demand Quantity Copyright © 2011 Cengage Learning Figure 8 The Efficient Level of Output Price Marginal cost Value to buyers Cost to monopolist Value to buyers Cost to monopolist Demand (value to buyers) Quantity 0 Value to buyers is greater than cost to seller. Value to buyers is less than cost to seller. Efficient quantity Copyright © 2011 Cengage Learning Figure 9 The Inefficiency of Monopoly Price Deadweight loss Marginal cost Monopoly price Marginal revenue 0 Monopoly Efficient quantity quantity Demand Quantity Copyright © 2011 Cengage Learning Figure 10 Welfare with and without Price Discrimination (1) (a) Monopolist with single price Price Consumer surplus Deadweight loss Monopoly price Profit Marginal cost Marginal revenue 0 Quantity sold Demand Quantity Copyright © 2011 Cengage Learning Figure 10 Welfare with and without Price Discrimination (2) (b) Monopolist with perfect price discrimination Price Profit Marginal cost Demand 0 Quantity sold Quantity Copyright © 2011 Cengage Learning Figure 11 Marginal Cost Pricing for a Natural Monopoly Price Average total cost Regulated price Loss Average total cost Marginal cost Demand 0 Quantity Copyright © 2011 Cengage Learning Table 2 Competition versus Monopoly: A Summary Comparison Copyright © 2010 Cengage Learning