Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
. . Absolute monopoly: • One seller • The firm is the industry • Firm’s demand is also the market demand. Why monopolies? . Why monopolies? • Governmental monopoly: USPS • Government-granted: patents, copyrights • Legal barriers to entry. What is • a natural monopoly? Natural monopoly • High fixed cost. • Low marginal cost. • Continuingly declining long-run average cost. Monopoly’s supply and demand • If no price controls, firm is a complete price maker. • In a market, the firm can infuence demand, but the demand is determined by the customers. • The firm can set price or quantity, but not both. Marginal revenue • Always below demand, and with steeper slope. • Straight-line demand: MR twice as steep • Lower price for previous and additional quantities. quod erat demonstrandum • • • • • Example: Q = 11 - P Inverse demand: P = 11 - Q R = PQ = (11-Q)Q = 11Q - Q2 MR = ∂R/∂Q = 11 - 2Q The MR curve has twice the slope of the demand curve. Q.E.D. Maximum monopoly profit • Quantity where MC = MR • Quantity less than competitive industry • Price higher than competitive. • Therefore, deadweight loss Monopoly supply • A supply point, not a curve. • At the profit-maximizing quantity and price. Is monopoly bad? • Discuss! Monopoly bad? • Yes, if due to government protection. • Can be offset by incentive to creation and invention (copyright, patent). • Big firm can have economies of scale. • Big firm can afford big research. • Can have network externalities. Policy for natural monopoly • Efficient price: MC • Rent can pay fixed cost. • If price set at average cost, incentive to increase costs. • Firm can be owned by the community. Who gains • from monopoly profit? Who gains from monopoly profit? • Market price of stock goes up to make normal returns. • Owners at the time it becomes a monopoly are the gainers. Price discrimination • Charging different prices to various customers for the same goods. • Perfect price discrimination: complete, • Each buyer pays his maximum. • Minimal consumer surplus. • No DWL. Max monopoly profit. Does monopoly profit cause DWL? • No. • Profit does not harm society. • Loss of socal surplus is the harm. • Correlation is not causation.