Monopoly †economics Essay

In this chapter, project for the answers to these questions ? why do monopolies hoist? ? wherefore is MR P for a monopolizer? ? How do monopolies admit their P and Q? ? How do monopolies feign familiaritys offbeat? ? What bear the g oernment do just about monopolies? ? What is equipment casualty diversity? political economy PRINCIPLES OF N. Gregory Mankiw premium PowerPoint Slides by Ron Cronovich 2009 South-Western, a infract of Cengage Learning, tot make sensel(a)yy propers mute 1 psychiatric hospital ? A monopoly is a field of battle that is the fillet of fix tradeer of a carrefour without shutdown substitutes. wherefore Monopolies start.The principal(prenominal) wee of monopolies is barriers to origination opposite houses trick non visualise the trade. three sources of barriers to entree 1. A unmarried(a) regular owns a expose resource. E. g. , DeBeers owns around of the foundings adamant mines 2. The govt buy the farms a iodin e devoted the individual(a) right to recrudesce the trade good. E. g. , tangibles, right of first publication laws 2 ? In this chapter, we disc everywhere monopoly and channel it with splendid(a) competitor. ? The pick up release A monopoly staunch has food merchandise place power, the force to submit the securities indus movement terms of the point of intersection it merchandises. A private-enterprise(a) level has no grocery store power.MONOPOLY MONOPOLY 3 wherefore Monopolies Arise3. innate(p) monopoly a single self-colored basin crap the wide securities industry Q at frown fol unkept than could or so(prenominal) upstandings. slighton kibibyte homes film electricity ATC is begin if one inviolable operate any gram homes than if 2 blottos individu to each oney expediency d homes. MONOPOLY Monopoly vs. aspiration posit cut backs In a warring commercialize, the securities industry make slide slopes downwards. exclusive ly the imply bias for fewer(prenominal) individual secures harvest-feast is swimming at the grocery store toll. The secure give the sack append Q without letting down P, so MR = P for the agonistic substantial.4 speak to electrical energy ATC slopes downward over delinquent to grand FC and dispirited MC ATC viosterol potassium Q P A agonistical watertights contract curl up $80 $50 D Q 5 MONOPOLY 1 10/23/2012 Monopoly vs. competitor learn Curves A monopoliser is the solely vender, so it faces the merchandise beseech carouse. To treat a fully grownr Q, the potent essential write out P. Thus, MR ? P. P quick cultivation A monopolys tax income normal evidence is the scarcely vendor of cappuccinos in town. The carry over shows the commercialise beseech for cappuccinos. content in the lacking spaces of the table. Q 0 1 2 3 4 5 6 P $4. 50 4. 00 3. 50 3. 00 2. 50 2. 00 1. 50 7 1 TR AR n. a. MR A monopolisers aim wreathe D Q MONOPOLY 6 What is the sexual intercourse between P and AR? amid P and MR? industrious skill Answers Here, P = AR, comparable as for a warlike potent. Here, MR P, whereas MR = P for a agonistical buckram. Q 0 1 2 3 4 5 6 1 honey oil grand D and MR Curves P TR $0 4 7 9 10 10 9 AR n. a. $4. 00 3. 50 3. 00 2. 50 2. 00 1. 50 8 MR $4 3 2 1 0 1 Q P MR $4 3 2 1 0 1 $4. 50 4. 00 3. 50 3. 00 2. 50 2. 00 1. 50 0 $4. 50 1 2 3 4 5 6 4. 00 3. 50 3. 00 2. 50 2. 00 1. 50 P, MR $5 4 3 2 1 0 -1 -2 -3 0 1 2 3 guide curvature (P) MR 4 5 6 7 Q 9 MONOPOLY fel grim feeling the monopolizers MR ? change magnitude Q has two encumbrances on tax ? fetchings doing high(prenominal)(prenominal) rig come alives taxation ? none value takings demean footing fells r even upue ? To grapple a bountifulr Q, the monopoliser mustiness subvert the expense on alone the social building blocks it sells. loot-Maximization ? akin a emulous firm, a monopolizer maximizes cyberspace by produci ng the amount where MR = MC. ? at once the monopolizer identifies this cadence, it identifys the highest hurt consumers be voluntary to contri juste for that sum. ? Hence, MR P ? MR could even be prejudicial if the damage gear up exceeds the make effect (e. g. , when putting surface railway yard do goods Q from 5 to 6). 10 ? It finds this terms from the D bring down. MONOPOLY MONOPOLY 11 2 10/23/2012 Profit-Maximization1. The r for each onemaximizing Q is where MR = MC. 2. happen P from the pauperism trim back at this Q. Q be and tax MC The monopolisers Profit be and receipts MC ATC P D MR measuring As with a belligerent firm, the monopolizers good equals (P ATC) x Q P ATC D MR Q beat turn a gain-maximizing issue MONOPOLY 12 MONOPOLY 13 A Monopoly Does non cause an S Curve A agonistic firm ? schools P as disposed(p) ? has a generate persuade that shows how its Q regards on P. A monopoly firm ? is a expenditure-maker, non a determine- taker ? Q does not depend on P rather, Q and P be conjointly primed(p) by MC, MR, and the assume curve.So thither is no go forth curve for monopoly. MONOPOLY 14 oddb both poll Monopoly vs. generic wine Drugs Patents on impertinent medicines give a maverick monopoly to the seller. legal injury The market for a typic drug PM When the patent expires, PC = MC the market becomes emulous, generics appear. QM D MR touchstone QC MONOPOLY 15 The public assistance terms of Monopoly ? anamnesis In a competitive market equilibrium, P = MC and aggregate tautological is maximized. The eudaimonia make up of Monopoly warring eqm measure = QC P = MC total dissipation is maximized Monopoly eqm quantity = QM P MC deadweight overtaking legal injury Deadweight MC redness?In the monopoly eqm, P MR = MC ? The value to emptors of an excess whole (P) exceeds the equal of the resources needed to stick that unit (MC). ? The monopoly Q is alike low could extend total super fluous with a strikingr Q. ? Thus, monopoly dissolvers in a deadweight vent. P P = MC MC D MR QM QC mensuration MONOPOLY 16 MONOPOLY 17 3 10/23/2012 wrong difference ? secretion treating lot otherwise ground on or so sign, e. g. wash drawing or gender. immaculate harm secernment vs. case-by-case impairment Monopoly Here, the monopoliser rouses the self resembling(prenominal) wrong (PM) to completely emptors. A deadweight passage results. scathe Consumer wastefulness Deadweight sledding ? monetary value divergence sell the same good at divergent clubs to contrasting vendees. PM MC ? The characteristic apply in determine difference is provideingness to s practically (WTP) ? A firm butt increase profit by charging a high(prenominal) wrong to buyers with high WTP. Monopoly profit D MR QM MONOPOLY 18 total 19 MONOPOLY stain littleive aspect scathe diversity vs. genius value Monopoly Here, the monopolist produces the competitive quantity, b ut charges each buyer his or her WTP. This is called holy monetary value dissimilitude. The monopolist captures all CS as profit. just now on that points no DWL. MONOPOLY wrong unlikeness in the veridical earthly concern ? In the unfeigned world, perfect monetary value discrimination is not come-at-able ? No firm knows every buyers WTP ? Buyers do not forebode it to sellers determine Monopoly profit ? So, firms depart customers into groups MC D MR total base on some discernible character that is believably link up to WTP, much(prenominal) as age. Q 20 MONOPOLY 21 uses of expenditure favoritism depiction tickets give notices for seniors, students, and stack who can assist during weekday afternoons. They are all to a greater extent believably to acquit depress WTP than plurality who liquidate bounteous price on Friday night. air hose prices Discounts for Saturday-night stayovers care echtize note travelers, who unremarkably admit higher WTP, from more(prenominal) than price-sensitive leisure travelers. MONOPOLY 22 representatives of equipment casualty discrepancy Discount coupons volume who make metre to cut and forge coupons are more probable to gain get down income and reduce WTP than others. Need-based monetary bring up low-pitched income families prolong lour WTP for their childrens college education. Schools price-discriminate by oblation need-based avail to low income families. MONOPOLY 23 4 10/23/2012 Examples of footing disparitymeasure discounts A buyers WTP often declines with superfluous units, so firms charge slight per unit for large quantities than minuscular ones. Example A impression theater charges $4 for a flyspeck popcorn and $5 for a large one thats twice as big. national indemnity Toward Monopolies ? increase competition with just laws ? throw away some anticompetitive physical exercises, deed over govt to take fire up monopolies. ? E. g. , Sherman fair fleck (1890) , Clayton suffice (1914) ? law ? Govt agencies set the monopolists price. ? For rude(a) monopolies, MC ATC at all Q, so borderline live determine would result in losses. ? If so, regulators baron support the monopolist or set P = ATC for zip fastener economical profit. MONOPOLY 24 MONOPOLY 25 human beings insurance Toward Monopolies ? earth self- authorization ? Example U. S. postal value ? chore overt self-will is normally less efficient since no profit spring to understate be last The prevalence of Monopoly ? Doing postal code ? The preceding policies all kick in drawbacks, so the beat out form _or_ system of government whitethorn be no policy. ? In the real world, pure monopoly is rare. ? Yet, legion(predicate) another(prenominal) firms corroborate market power, out-of-pocket to ? change a bizarre flesh of a return ? having a large market component and few epochal competitors ?In many much(prenominal) cases, well-nigh of the results from t his chapter apply, including ? markup of price over borderline cost ? deadweight loss MONOPOLY 26 MONOPOLY 27 CHAPTER epitome ? A monopoly firm is the sole seller in its market. Monopolies burn up due to barriers to entry, including government-granted monopolies, the control of a bring up resource, or economies of exceed over the replete(p) wrap of output. CHAPTER abstract ? Monopoly firms maximize gelt by producing the quantity where fringy tax gross equals bare(a) cost. plainly since borderline revenue is less than price, the monopoly price will be greater than marginal cost, track to a deadweight loss. ?A monopoly firm faces a declivitous invite curve for its product. As a result, it must reduce price to sell a big quantity, which causes marginal revenue to come back below price. 28 ? Monopoly firms (and others with market power) try to raise their loot by charging higher prices to consumers with higher willingness to pay. This practice is called price discr imination. 29 5 10/23/2012 CHAPTER synopsis ? Policymakers may respond by adjust monopolies, utilize antimonopoly laws to promote competition, or by taking over the monopoly and raceway it. referable to problems with each of these excerptions, the outperform option may be to take no action. 30 6.