timer Asked: Nov 27th, 2018
account_balance_wallet $15

Question description

Chapter 13 Homework
Chapter 13 Monopoly 1 Monopoly  A monopolist is a firm that is the only producer of a good that has no close substitutes. An industry controlled by a monopolist is known as a monopoly.  Krugman references De Beers (diamonds) as an example 2 Monopoly  Market power is the ability of a firm to raise prices.  The monopolist (individual) supply curve is the industry supply curve  The monopolist exists because of barriers to entry 3 Monopoly 4 Monopoly  Monopolies exist because of barriers to entry  1. Control of a scarce resource or input  2. Increasing returns to scale  Average cost falls as output increases due to high fixed cost, leads to natural monopoly  3. Technological superiority  4. Network externality  5. Government created barrier  Patent & Copyright 5 Monopoly 6 Monopoly  Monopoly Profit Maximization:  Recall for the perfectly competitive firm MR=MC was the rule  And MR=P  P=MC  This holds for the monopolist, except MR ≠ P like it did for the perfectly competitive firm 7 Monopoly The demand curve faced by monopolists is the industry demand curve 8 Monopoly  When monopolists increase output  Market price falls  Transacted quantity increases  More quantity is sold, increasing total revenue (called the quantity effect)  Less price per unit is achieved, decreasing total revenue (called the price effect) 9 Monopoly 10 Monopoly 11 Monopoly 12 Monopoly  Graphically, to find profit maximizing price & quantity for a monopolist:  Find the quantity where MC=MR  From that quantity, read the price from the demand curve  *note that in the following graph, MC is assumed to be constant and there is no fixed cost, therefore MC=ATC 13 Monopoly 14 Monopoly  Monopolists tend to (in relation to perfect competitors)  Produce a smaller output  Charge a higher price  Earn an economic profit (in short and long run) 15 Monopoly  The following slides are a graphical comparison of perfect competition to monopoly, without numbers  Recall: 16 Monopoly 17 Figure 13.6 18 Solution to #2 19 Monopoly & Inefficiency 20 Monopoly  Preventing Monopoly  Natural monopolies are generally allowed to exist because they achieve low cost  Other monopolies are broken up (in the USA) through antitrust policy  Dealing with Natural Monopoly  Public ownership  Regulation – price ceiling 21 Unregulated v. Regulated 22 Price Discrimination  When a firm charges different prices to different consumers for the same good  Consider an airline that faces demand such that:  2000 business flyers won’t pay over $550 to fly  2000 student flyers won’t pay over $150 to fly  MC = $125, no fixed cost 23 Price Discrimination  If the airline charges $550, profit is $850,000  If the airline charges $150, profit is $100,000  If the airline charges $550 to business flyers and $150 to student flyers, profit is $900,000  If a firm perfectly price discriminates, it converts all consumer surplus to profit 24 Price Discrimination 25 Price Discrimination 26 Price Discrimination 27 Price Discrimination 28 Price Discrimination  Ways that a firm can engage in price discrimination  Advance purchase restrictions  Volume discounts  Two-part tariffs (like Sam’s Club) 29

Tutor Answer

School: UT Austin


flag Report DMCA

Goes above and beyond expectations !

Similar Questions
Hot Questions
Related Tags

Brown University

1271 Tutors

California Institute of Technology

2131 Tutors

Carnegie Mellon University

982 Tutors

Columbia University

1256 Tutors

Dartmouth University

2113 Tutors

Emory University

2279 Tutors

Harvard University

599 Tutors

Massachusetts Institute of Technology

2319 Tutors

New York University

1645 Tutors

Notre Dam University

1911 Tutors

Oklahoma University

2122 Tutors

Pennsylvania State University

932 Tutors

Princeton University

1211 Tutors

Stanford University

983 Tutors

University of California

1282 Tutors

Oxford University

123 Tutors

Yale University

2325 Tutors