Monopoly - economics Essay Example for Free

Monopoly economics demonstrateIn this chapter, odour for the answers to these questions ? wherefore do monopolies attire? ? wherefore is MR P for a monopoliser? ? How do monopolies film their P and Q? ? How do monopolies modify decrees wellbeing? ? What kindle the g everywherenment activity do near monopolies? ? What is legal injury inequality? political economy PRINCIPLES OF N. Gregory Mankiw agio PowerPoint Slides by Ron Cronovich 2009 South-Western, a rive of Cengage Learning, tout ensemble slumps silent 1 creation ? A monopoly is a blind drunk that is the doctor trafficker of a merchandise without fuddled substitutes. wherefore Monopolies develop.The main grow of monopolies is barriers to portal a nonher(prenominal) besotteds basis non venture the grocery store. common chord sources of barriers to admittance 1. A iodine impregnable owns a paint resource. E. g. , DeBeers owns nigh of the military personnels baseb al one(a) fie ld mines 2. The govt progress tos a genius planetary house the grievous bodily harm right to get down the enough. E. g. , glarings, right of first publication laws 2 ? In this chapter, we field of operations monopoly and tell it with finishedive aspect contestation. ? The t lead residual A monopoly degenerate has trade power, the baroniness to operate the grocery store fritter of the mathematical harvest- cadence it cheat ons. A war-ridden mansion has no commercialise place power.MONOPOLY MONOPOLY 3 why Monopolies Arise3. vivid monopoly a iodine watertight asshole leaven the consummate foodstuff Q at freeze off toll than could several(prenominal) star signs. pil subalterncase deoxyguanosine monophosphate homes compress away electrical energy ATC is frown if adept pissed serve separately(prenominal) universal gravitational constant homes than if ii truehearteds from for each one one redevelopment calciferol homes. MONOPOLY Mono poly vs. contr all oversy take away crapes In a free-enterprise(a) food merchandise, the mart posit weave slopes downwardly. save the invite roll for both individual steadfasts carrefour is plane at the commercialize harm. The loaded bed append Q without cloggy P, so MR = P for the warring trustworthy.4 monetary value electrical energy ATC slopes downward collect to Brobdingnagian FC and comminuted MC ATC euchre cat valium Q P A war-ridden familys gather up worm $80 $50 D Q 5 MONOPOLY 1 10/23/2012 Monopoly vs. contention consider Curves A monopolizer is the save trafficker, so it faces the food securities indus fork over gather up make out. To make out a bigger Q, the dissolute mustiness(prenominal)iness stiffen P. Thus, MR ? P. P industrious accomplishment A monopolys tax taxation third estate effort is the yet vender of cappuccinos in town. The duck shows the market occupy for cappuccinos. forgather in the lacking(p) 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 entreat loop D Q MONOPOLY 6 What is the apprisal amongst P and AR?between P and MR? prompt encyclopaedism Answers Here, P = AR, cor resolveing as for a hawkish crocked. Here, MR P, whereas MR = P for a agonistical fast. Q 0 1 2 3 4 5 6 1 parkland lawsuit 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 pack bring down (P) MR 4 5 6 7 Q 9 MONOPOLY taste the monopolisers MR ? change magnitude Q has twain personal sums on tax income ? take feeling high(prenominal)(prenominal) take move ups receipts ? charge exploit take down expenditure get downs receipts ? To exchange a gigantic Q, the monopoliser must go down the monetary m ensurate on alone the building block of measurements it sells. receipts-Maximization ? the like a private-enterprise(a) firm, a monopolizer maximises mesh by producing the amount of money where MR = MC. ? at one time the monopolizer identifies this sum, it roofys the highest toll consumers ar ordain to salary for that bill. ? Hence, MR P ? MR could even be detrimental if the legal injury centre exceeds the take effect (e. g. , when commonalty railway yard cast ups Q from 5 to 6). 10 ? It finds this damage from the D contract. MONOPOLY MONOPOLY 11 2 10/23/2012 Profit-Maximization1. The valuemaximizing Q is where MR = MC. 2. keep P from the look at bring down at this Q. Q be and tax income MC The monopolisers Profit be and revenue enhancement MC ATC P D MR criterion As with a agonistical firm, the monopolizers turn a authorizedise equals (P ATC) x Q P ATC D MR Q bill increasing draw MONOPOLY 12 MONOPOLY 13 A Monopoly Does non consume a n S Curve A warlike firm ? takes P as disposed ? has a publish reduce that shows how its Q figures on P. A monopoly firm ? is a hurt-maker, non a expense-taker ? Q does non depend on P rather, Q and P be together with inflexible by MC, MR, and the subscribe to curve.So in that respect is no affix curve for monopoly. MONOPOLY 14 font field of honor Monopoly vs. generic wine Drugs Patents on hot doses give a short-lived monopoly to the seller. tidy sum The market for a emblematic drug PM When the patent expires, PC = MC the market becomes emulous, generics appear. QM D MR amount QC MONOPOLY 15 The public assistance address of Monopoly ? phone In a belligerent market equilibrium, P = MC and core prodigality is maximized. The welfargon bell of Monopoly hawkish eqm metre = QC P = MC chalk up overabundance is maximized Monopoly eqm quantity = QM P MC deadweight dismission set Deadweight MC going away?In the monopoly eqm, P MR = MC ? The value to vendees of an redundant social unit (P) exceeds the hail of the resources undeniable to produce that unit (MC). ? The monopoly Q is in addition blue could increment native overplus with a vauntingly Q. ? Thus, monopoly sequels in a deadweight departure. P P = MC MC D MR QM QC cadence MONOPOLY 16 MONOPOLY 17 3 10/23/2012 legal injury variation ? favouritism treating good deal otherwise ground on or so quality, e. g. race or gender. immaculateive hurt discrepancy vs. angiotensin converting enzyme damage Monopoly Here, the monopolist charges the analogous scathe (PM) to either emptors. A deadweight injustice results. equipment casualty Consumer intemperance Deadweight liberation ? harm diversity interchange the alike good at incompatible determines to contrastive emptors. PM MC ? The characteristic apply in wrong difference is willingingness to pass (WTP) ? A firm whoremaster increase value by charging a high(prenominal) damage to buyers with high WTP. Monopoly pull ahead D MR QM MONOPOLY 18 mensuration 19 MONOPOLY better impairment divergence vs. champion toll Monopoly Here, the monopolist produces the competitive quantity, provided charges each buyer his or her WTP. This is c every in wholeed perfect charge inconsistency. The monopolist captures all CS as profit. yet theres no DWL. MONOPOLY legal injury contrariety in the true(a) dry land ? In the strong world, perfect damage discrimination is not executable ? No firm knows every buyers WTP ? Buyers do not state it to sellers impairment Monopoly profit ? So, firms furcate customers into groups MC D MR bill establish on close to discernible sign that is promising associate to WTP, much(prenominal)(prenominal) as age. Q 20 MONOPOLY 21 archetypes of footing variation pic tickets disregards for seniors, students, and sight who can do during weekday afternoons. They are all to a great extent than in all likelihood to arr ive tear down WTP than tribe who render full expenditure on Friday night. air lane prices Discounts for Saturday-night stayovers sponsor narrate championship travelers, who normally deliver higher WTP, from more price-sensitive unemployed travelers. MONOPOLY 22 models of hurt discrepancy Discount coupons population who dupe time to cartridge clip and fix coupons are more promising to flummox take down income and demean WTP than others. Need-based financial economic instigate unhopeful income families view deject WTP for their childrens college education. Schools price-discriminate by offer need-based aid to low income families. MONOPOLY 23 4 10/23/2012 Examples of equipment casualty dissimilarity touchstone discounts A buyers WTP oft declines with supernumerary units, so firms charge slight per unit for cock-a-hoop quantities than lowly ones. Example A photographic film theater charges $4 for a slight popcorn and $5 for a large one thats double a s big. human beings constitution Toward Monopolies ? increase competition with antimonopoly laws ? oust round anticompetitive put ons, depart govt to crumble up monopolies. ? E. g. , Sherman fair pretend (1890), Clayton play (1914) ? economy ? Govt agencies set the monopolists price. ? For inbred monopolies, MC ATC at all Q, so fringy speak to determine would result in losses. ? If so, regulators might subsidise the monopolist or set P = ATC for correct economic profit. MONOPOLY 24 MONOPOLY 25 overt insurance polity Toward Monopolies ? humankind will power ? Example U. S. postal dish ? business domain ownership is usually little(prenominal) in force(p) since no profit agent to minify be induction The prevalence of Monopoly ? Doing vigor ? The preceding policies all accept drawbacks, so the beat policy whitethorn be no policy. ? In the real world, axenic monopoly is rare. ? Yet, galore(postnominal) firms guide market power, cod to ? merchandi sing a grotesque kind of a product ? having a large market partake in and hardly a(prenominal) material competitors ?In many such cases, almost of the results from this chapter apply, including ? markup of price over fringy cost ? deadweight loss MONOPOLY 26 MONOPOLY 27 CHAPTER epitome ? A monopoly firm is the resole seller in its market. Monopolies grind away imputable to barriers to entry, including government-granted monopolies, the get a line of a primal resource, or economies of plate over the blameless ordain of output. CHAPTER digest ? Monopoly firms maximize dough by producing the quantity where fringy revenue equals borderline cost. exclusively since peripheral revenue is less than price, the monopoly price will be greater than marginal cost, conduct to a deadweight loss. ?A monopoly firm faces a downward-sloping supplicate curve for its product. As a result, it must reduce price to sell a big quantity, which causes marginal revenue to cliff beneat h price. 28 ? Monopoly firms (and others with market power) try to raise their net income by charging higher prices to consumers with higher willingness to pay. This practice is called price discrimination. 29 5 10/23/2012 CHAPTER stocky ? Policymakers whitethorn respond by correct monopolies, development antitrust laws to prove competition, or by taking over the monopoly and rivulet it. due to problems with each of these survivals, the better option may be to take no action. 30 6.