Monopsony(微观经济学-华侨大学,JeffCaldwell)

P = LMC = LRAC Normal profits or zero economic profits in
the long run Large number of buyers and sellers Homogenous product Perfect information Firm is a price taker
0
Chapter 10
MC
Profit
AC AR
MR
5
10
15
20
Quantity
Slide 21
Example of Profit Maximization
Observations
AC = $15, Q = 10, TC = AC x Q = 150
$/Q
40
Profit = TR = TC = $300
Chapter 10
Slide 2
Topics to be Discussed
Monopsony Monopsony Power Limiting Market Power: The Antitrust
Laws
Chapter 10
Slide 3
Perfect Competition
Review of Perfect Competition
30
- $150 = $150 or
Profit = (P - AC) x Q =
Profit
20
($30 - $15)(10) = $150
15
10
MC
AC AR MR
0
5
10
15
20
Quantity
Chapter 10
Slide 22
Monopoly
A Rule of Thumb for Pricing
Q
Chapter 10
Slide 15
Monopoly
The Monopolist’s Output Decision
An Example
Demand P(Q) 40 Q R(Q) P(Q)Q 40Q Q2 MR R 40 2Q
Q
Chapter 10
Slide 16
Monopoly
Chapter 10
Slide 10
Monopoly
Observations 1) To increase sales the price must fall 2) MR < P 3) Compared to perfect competition
No change in price to change sales MR = P
Monopoly P > MC
Perfect Competition P = MC
Chapter 10
Slide 29
Monopoly
Monopoly pricing compared to perfect competition pricing:
The more elastic the demand the closer price is to marginal cost.
1995
Price of Prilosec = $3.50/daily dose
Price of Tagamet and Zantac = - $2.25/daily dose
$1.50
MC of Prolosec = 30 - 40 cents/daily dose
Chapter 10
Slide 31
If Ed is a large negative number, price is close to marginal cost and vice versa.
Chapter 10
Slide 30
Astra-Merck Prices Prilosec
The Monopolist’s Output Decision
1 ED
P
MC
1 1 ED
Chapter 10
Slide 26
A Rule of Thumb for Pricing
7. 1 = the markup over MC as a Ed percentage of price (P-MC)/P
8. The markup should equal the inverse of the elasticity of demand.
This can be demonstrated using the following steps:
Chapter 10
Slide 23
A Rule of Thumb for Pricing
1. MR R (PQ) Q Q
2.
MR
P
Q
P Q
P
P
Q P
P Q
3. Ed P Q Q P
Chapter 10
Slide 7
Monopoly
Finding Marginal Revenue
As the sole producer, the monopolist works with the market demand to determine output and price.
Assume a firm with demand: P = 6 - Q
We want to translate the condition that marginal revenue should equal marginal cost into a rule of thumb that can be more easily applied in practice.
Chapter 10
Slide 8
Total, Marginal, and Average Revenue
Price P
$6 5 4 3 2 1
Quantity Q
0 1 2 3 4 5
Total Revenue
R
$0 5 8 9 8 5
Marginal Revenue
MR
--$5
3 1 -1 -3
The Monopolist’s Output Decision
An Example
MR MC or 40 2Q 2Q Q 10 When Q 10, P 30
Chapter 10
Slide 17
Monopoly
The Monopolist’s Output Decision
An Example
Chapter 10
Slide 6
Monopoly
The monopolist is the supply-side of the market and has complete control over the amount offered for sale.
Profits will be maximized at the level of output where marginal revenue equals marginal cost.
Chapter 10
Slide 11
Monopoly
Monopolist’s Output Decision
1) Profits maximized at the output level where MR = MC
2) Cost functions are the same
(Q) R(Q) C(Q) / Q R / Q C / Q 0 MC MR
Average Revenue
AR
--$5
4 3 2 1
Chapter 10
Slide 9
Average and Marginal Revenue
$ per 7
unit of
output
6
5
4
Average Revenue (Demand)
3
2
Marginal
1 Revenue
0
1 2 3 4 5 6 7 Output
Chapter 10
Market Power: Monopoly and
Monopsony
Topics to be Discussed
Monopoly Monopoly Power Sources of Monopoly Power The Social Costs of Monopoly Power
$ per unit of output
P1 P*
P2
Lost profit
Q1
Chapter 10
MC
AC
MR Q* Q2
D = AR
Lost profit
Quantity SБайду номын сангаасide 14
Monopoly
The Monopolist’s Output Decision
An Example
Cost C(Q) 50 Q2 MC C 2Q
Profit = TR - TC $150 = $300 - $150
Chapter 10
$ 400
300
200 t
150
100
50
c
0
5
C
t'
R
c
Profits
10 15
20
Quantity
Slide 20
Example of Profit Maximization
$/Q
40
30
20 15 10
Chapter 10
Slide 27
A Rule of Thumb for Pricing
9. P MC
1
1 Ed
A ssume
Ed 4 MC 9
P
9
9 $12
1
1 4
.75
Chapter 10
Slide 28
Monopoly
Monopoly pricing compared to perfect competition pricing:
Slope of rr’ = slope cc’ and they are parallel at 10 units
Profits are maximized at 10 units
P = $30, Q = 10, TR = P x Q = $300
AC = $15, Q = 10, TC = AC x Q = 150
At output levels above MR = MC the increase in cost is greater than the decrease in revenue (MR < MC)
Chapter 10
Slide 13
Maximizing Profit When Marginal Revenue Equals Marginal Cost
Chapter 10
Slide 4
Perfect Competition
P D
Market
P
S
Individual Firm LMC
LRAC
P0
P0
D = MR = P
Q0
Q
q0
Q
Monopoly
Monopoly 1) One seller - many buyers 2) One product (no good substitutes) 3) Barriers to entry
or MC MR
Chapter 10
Slide 12
Maximizing Profit When Marginal Revenue Equals Marginal Cost
The Monopolist’s Output Decision
At output levels below MR = MC the decrease in revenue is greater than the decrease in cost (MR > MC).
Slide 18
Example of Profit Maximization
$
400
300
200
t
150
100
50
c
0
5
Chapter 10
C
t'
R
c’ Profits
10
15
20 Quantity
Slide 19
Example of Profit Maximization
Observations
Astra-Merck Prices Prilosec
The Monopolist’s Output Decision
By setting marginal revenue equal to marginal cost, it can be verified that profit is maximized at P = $30 and Q = 10.
This can be seen graphically:
Chapter 10
Chapter 10
Slide 24
A Rule of Thumb for Pricing
4. Q
P P Q
1 Ed
5.
MR
P
P
1 Ed
Chapter 10
Slide 25
A Rule of Thumb for Pricing
6. is maximized @ MR MC
P
P
1 ED