MODELS OF MONOPOLY(垄断模型) 尼科尔森中级微观ppt
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中级微观经济学尼克尔森PPT课件
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• G. 经济命题的“可证伪性” （falsification）是命题科学性的关键所在 （Karl Popper）。
• There are two general methods used to verify economic models: • direct approach • establishes the validity of the model’s assumptions • indirect approach • shows that the model correctly predicts real-world events
• 关于税收的两种常见的误解： • 1、征税1￥并不是商品价格上涨1￥； • 2、政府提高消费税1￥并不是消费者购买商品时多付出1￥。 • 一、无论是征税还是补贴，都一定是在需求者与供给者之间进行分担（分摊）的，
而且，这种分摊效应与征税或者补贴直接面对的对象到底是哪一方无关。 • 二、这种分担的效应取决于供求曲线的形状，尤其是它们两者之间的相对弹性的
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决策行为的模型化
• 经济学通常被定义为“在一个稀缺性的环境之下的理性选择行为研究”，但是从我们的课本内容来看，往 往并不能看到这一点，经济学在其中似乎只能被定义为“在一个变化的环境中对于市场交易和市场行为的 研究”。
• 近一个世纪以来，经济学的研究方法虽然已经取得了很大的进步，但是结论似乎并没有多大的变化。
Qd f P
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第9页/共474页
• G. 经济命题的“可证伪性” （falsification）是命题科学性的关键所在 （Karl Popper）。
• There are two general methods used to verify economic models: • direct approach • establishes the validity of the model’s assumptions • indirect approach • shows that the model correctly predicts real-world events
• 关于税收的两种常见的误解： • 1、征税1￥并不是商品价格上涨1￥； • 2、政府提高消费税1￥并不是消费者购买商品时多付出1￥。 • 一、无论是征税还是补贴，都一定是在需求者与供给者之间进行分担（分摊）的，
而且，这种分摊效应与征税或者补贴直接面对的对象到底是哪一方无关。 • 二、这种分担的效应取决于供求曲线的形状，尤其是它们两者之间的相对弹性的
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40 - 5 pT 15 pT -T -10 2
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50 15 T 2
决策行为的模型化
• 经济学通常被定义为“在一个稀缺性的环境之下的理性选择行为研究”，但是从我们的课本内容来看，往 往并不能看到这一点，经济学在其中似乎只能被定义为“在一个变化的环境中对于市场交易和市场行为的 研究”。
• 近一个世纪以来，经济学的研究方法虽然已经取得了很大的进步，但是结论似乎并没有多大的变化。
尼科尔森中级微观经济学课件 (11)
8
Profit Maximization
• Since MR = MC at the profit-maximizing output and P > MR for a monopolist, the monopolist will set a price greater than marginal cost
firm
P MC 1
P
eQ,P
where eQ,P is the elasticity of demand for the entire market
11
The Inverse Elasticity Rule
• Two general conclusions about monopoly pricing can be drawn:
– the industry’s long-run supply curve is infinitely elastic with a price equal to both marginal and average cost
22
Monopoly and Resource Allocation
– a monopoly will choose to operate only in regions where the market demand curve is elastic
• eQ,P < -1
– the firm’s “markup” over marginal cost depends inversely on the elasticity of market demand
– the price-output combination where MR = MC
Profit Maximization
• Since MR = MC at the profit-maximizing output and P > MR for a monopolist, the monopolist will set a price greater than marginal cost
firm
P MC 1
P
eQ,P
where eQ,P is the elasticity of demand for the entire market
11
The Inverse Elasticity Rule
• Two general conclusions about monopoly pricing can be drawn:
– the industry’s long-run supply curve is infinitely elastic with a price equal to both marginal and average cost
22
Monopoly and Resource Allocation
– a monopoly will choose to operate only in regions where the market demand curve is elastic
• eQ,P < -1
– the firm’s “markup” over marginal cost depends inversely on the elasticity of market demand
– the price-output combination where MR = MC
尼科尔森中级微观经济学课件 (1)
D
Quantity
Q*
3
Economic Efficiency and Welfare Analysis
Price
S At output Q1, total surplus will be smaller
P*
Q1
Q*
At outputs between Q1 and Q*, demanders would value an additional unit more than it would cost suppliers to produce
APPLIED COMPETITIVE ANALYSIS
1
Economic Efficiency and Welfare Analysis
• The area between the demand and the supply curve represents the sum of consumer and producer surplus
P1
been attained
without the price
control
D’
D
Quantity
Q1
Q2
18
Price Controls and Shortages
Price
SS
This shaded triangle
represents the value
of additional
LS producer surplus that
QD = 10 - P
and supply is given by
QS = P - 2
• Market equilibrium occurs where P* = 6 and Q* = 4
Quantity
Q*
3
Economic Efficiency and Welfare Analysis
Price
S At output Q1, total surplus will be smaller
P*
Q1
Q*
At outputs between Q1 and Q*, demanders would value an additional unit more than it would cost suppliers to produce
APPLIED COMPETITIVE ANALYSIS
1
Economic Efficiency and Welfare Analysis
• The area between the demand and the supply curve represents the sum of consumer and producer surplus
P1
been attained
without the price
control
D’
D
Quantity
Q1
Q2
18
Price Controls and Shortages
Price
SS
This shaded triangle
represents the value
of additional
LS producer surplus that
QD = 10 - P
and supply is given by
QS = P - 2
• Market equilibrium occurs where P* = 6 and Q* = 4
尼科尔森《微观经济理论——基本原理与扩展》核心讲义(垄断市场模型)【圣才出品】
第13章垄断市场模型13.1 本章要点·垄断的成因·垄断厂商的定价·垄断的低效率·垄断厂商与产品质量·价格歧视·对垄断的管制13.2 重难点解读1．垄断及其成因（1）垄断的定义垄断就是整个市场只有一个供给者。
该厂商可以选择市场需求曲线上的任何一点进行生产。
（2）垄断的成因垄断存在的原因是其他厂商认为这一市场无利可图或者难以进入这一市场。
因此，进入壁垒是所有垄断权力的根源。
有两类进入壁垒：技术壁垒与法律壁垒。
①进入的技术壁垒垄断的基本技术壁垒是商品的生产在一个大的产出水平范围内呈现边际（与平均）成本递减。
生产技术使得规模相对大的厂商是低成本的生产者。
这种情况又称之为自然垄断。
独特资源的拥有权，也都可能成为维持垄断的基础。
②进入的法律壁垒许多垄断是由法律而不是由经济条件所带来的。
一个由政府授予垄断地位的重要例子是通过专利对生产技术进行法律保护。
受保护的产品都得以（至少一段时间内）不面临可能的仿制者的直接竞争。
法律创造的垄断的第二个例子是授予一家厂商在一个市场提供某种服务的特许权。
这些特许权被授予公用事业（煤气与电力）、通讯业、邮电业、一些电视台与电台，以及其他类似行业。
③进入壁垒的设立一些进入壁垒是独立于垄断者自身行为的，但另外一些壁垒则可能直接来自于他们的行为。
例如，厂商可能开发出特有的产品与技术并采取特别的手段防止被竞争者仿造。
或者，厂商可能买断特有资源以阻止可能的竞争者进入。
2．利润最大化与产出选择（1）垄断厂商利润最大化原则垄断厂商利润最大化原则为：MR MC=，即一个垄断者将选择边际收益等于边际成本时的产量。
因为垄断者面对着一个向下倾斜的需求曲线，市场价格将超出该产出水平的边际收益与边际成本。
如图13-1所示，垄断厂商利润最大化产出水平为Q*，它将产生一个位于*。
P*点的市场价格，垄断者的利润为P EAC（2）反弹性规则利润最大化假设意味着，一个厂商的产出价格和其边际成本之间的缺口与厂商的需求曲线的价格弹性有一反向关系。
中级微观经济-Chapter24_Monopoly
y MR(y) = a - 2by
利润最大化；一个例子
$/产出
a p(y) = a - by
MC(y) = a + 2by
a
y* aa 2(b b)
y MR(y) = a - 2by
利润最大化；一个例子
$/产出
a
p(y*) ab aa
2(b b)
a
p(y) = a - by
p(y), 总需求= DI + DE
DE
p(y*)
pE
DI
MC(y)
y
自然垄断造成的市场进入障碍
$/单位产出
市场进入者能够降低市场中已
ATC(y) 有的价格p(y*)，但是
p(y*) pE
pI
p(y), 总需求= DI + DE
DE
市场中的厂商能够把 价格降 低至pI, 迫
使进入者退出市场
。 DI
p(y*)
p(ye) MC(y)
y* MR(y)
ye y
自然垄断的无效率
$/单位产出
ATC(y)
利润最大化: MR(y) = MC(y)
p(y) 效率: p = MC(y)
p(y*)
p(ye) MC(y)
DWL
y* MR(y)
ye y
对自然垄断的管制
为什么不要求自然垄断厂商生产有效率 的产出水平？ 那么无谓损失为零，为什么没有这么做 ？
MC(y)
ye
y
垄断的无效率
$/单位产出 p(y)
有效率的产出水平ye满足 p(y) = MC(y)。通过交易 所的效用达到最大化。
CS p(ye) PS
MC(y)
ye
利润最大化；一个例子
$/产出
a p(y) = a - by
MC(y) = a + 2by
a
y* aa 2(b b)
y MR(y) = a - 2by
利润最大化；一个例子
$/产出
a
p(y*) ab aa
2(b b)
a
p(y) = a - by
p(y), 总需求= DI + DE
DE
p(y*)
pE
DI
MC(y)
y
自然垄断造成的市场进入障碍
$/单位产出
市场进入者能够降低市场中已
ATC(y) 有的价格p(y*)，但是
p(y*) pE
pI
p(y), 总需求= DI + DE
DE
市场中的厂商能够把 价格降 低至pI, 迫
使进入者退出市场
。 DI
p(y*)
p(ye) MC(y)
y* MR(y)
ye y
自然垄断的无效率
$/单位产出
ATC(y)
利润最大化: MR(y) = MC(y)
p(y) 效率: p = MC(y)
p(y*)
p(ye) MC(y)
DWL
y* MR(y)
ye y
对自然垄断的管制
为什么不要求自然垄断厂商生产有效率 的产出水平？ 那么无谓损失为零，为什么没有这么做 ？
MC(y)
ye
y
垄断的无效率
$/单位产出 p(y)
有效率的产出水平ye满足 p(y) = MC(y)。通过交易 所的效用达到最大化。
CS p(ye) PS
MC(y)
ye
尼科尔森中级微观经济学课件 (13)
RTS > 0 and is diminishing for
A
kA
increasing inputs of labor
B
kB
q = 20
l per period
lA
lB
13
Marginal Rate of Technical Substitution (RTS)
• The marginal rate of technical substitution (RTS) shows the rate at which labor can be substituted for capital while holding output constant along an isoquant
which diminishes as l increases • This implies that q has a maximum value:
120,000l - 3000l2 = 0 40l = l2 l = 40
• Labor input beyond l = 40 reduces output 8
• But changes in the marginal productivity of labor over time also depend on changes in other inputs such as capital
– we need to consider flk which is often > 0
2fkflfkl (fk )3
fl2fkk )
• Because we have assumed fk > 0, the denominator is positive
中级微观经济学课件 第7章
一部分需求量可以用领导型厂商1所面临的市场需求 量来表示，另一部分需求量可以用追随型厂商2所提供的 产量来满足。
第二，厂商1决定市场价格，厂商2接受该价格 厂商1依靠自己的在市场上的领导支配地位，在事先 了解厂商2的供给曲线以及自己所面临的市场需求曲线的 前提下，决定能够给自己带来最大利润的市场价格，处于 追随地位的厂商2只能接受该价格并在此价格水平下实现 自己的最大利润。
图7—1 垄断厂商的需求曲线和收益曲线
3.边际收益、价格和需求的价格弹性
MR P(1 1 ) ed
当ed＞1时，有MR＞0。此时，TR曲线斜率为正，表示 厂商总收益TR随销售量Q的增加而增加。
当ed＜1时，有MR＜0。此时，TR曲线斜率为负，表示 厂商总收益TR随销售量Q的增加而减少。
当ed=1时，有MR=0。此时，TR曲线斜率为零，表示厂 商的总收益TR达极大值点。
二、古诺模型 1.古诺模型的基本假设
市场上只有A、B两个厂商生产和销售相同的产品，它们的生 产成本为零；它们共同面临的市场的需求曲线是线性的，A、B两 个厂商都准确地了解市场的需求曲线；A、B两个厂商都是在已知 对方产量的情况下，各自确定能够给自己带来最大利润的产量， 即每一个厂商都是消极地以自己的产量去适应对方已确定的产量。
图7—13 古诺模型
2.古诺模型的具体结论
在均衡状态中，A、B两个厂商的产量都为市场总容量 的1/3，行业的总产量为市场总容量的2/3。
3.古诺模型的一般性结论
若寡头厂商的数量为m，则可以得到如下一般性的结 论：
每个寡头厂商的均衡产量=市场总容量·[1÷(m+1)] 行业的均衡总产量=市场总容量·[m÷(m+1)]
存在一个d需求曲线和D需求曲线的交点。
第二，厂商1决定市场价格，厂商2接受该价格 厂商1依靠自己的在市场上的领导支配地位，在事先 了解厂商2的供给曲线以及自己所面临的市场需求曲线的 前提下，决定能够给自己带来最大利润的市场价格，处于 追随地位的厂商2只能接受该价格并在此价格水平下实现 自己的最大利润。
图7—1 垄断厂商的需求曲线和收益曲线
3.边际收益、价格和需求的价格弹性
MR P(1 1 ) ed
当ed＞1时，有MR＞0。此时，TR曲线斜率为正，表示 厂商总收益TR随销售量Q的增加而增加。
当ed＜1时，有MR＜0。此时，TR曲线斜率为负，表示 厂商总收益TR随销售量Q的增加而减少。
当ed=1时，有MR=0。此时，TR曲线斜率为零，表示厂 商的总收益TR达极大值点。
二、古诺模型 1.古诺模型的基本假设
市场上只有A、B两个厂商生产和销售相同的产品，它们的生 产成本为零；它们共同面临的市场的需求曲线是线性的，A、B两 个厂商都准确地了解市场的需求曲线；A、B两个厂商都是在已知 对方产量的情况下，各自确定能够给自己带来最大利润的产量， 即每一个厂商都是消极地以自己的产量去适应对方已确定的产量。
图7—13 古诺模型
2.古诺模型的具体结论
在均衡状态中，A、B两个厂商的产量都为市场总容量 的1/3，行业的总产量为市场总容量的2/3。
3.古诺模型的一般性结论
若寡头厂商的数量为m，则可以得到如下一般性的结 论：
每个寡头厂商的均衡产量=市场总容量·[1÷(m+1)] 行业的均衡总产量=市场总容量·[m÷(m+1)]
存在一个d需求曲线和D需求曲线的交点。
ECONOMIC MODELS(经济模式) 尼科尔森中级微观ppt
11
The Economic Theory of Value
• The Founding of Modern Economics
– the publication of Adam Smith’s The Wealth of Nations is considered the beginning of modern economics – distinguishing between “value” and “price” continued (illustrated by the diamond-water paradox)
– the Marshallian model is a partial equilibrium model
• focuses only on one market at a time
– to answer more general questions, we need a model of the entire economy
8
Optimization Assumptions
• Optimization assumptions generate precise, solvable models • Optimization models appear to be perform fairly well in explaining reality
• water has a low marginal value and a low marginal cost of production Low price • diamonds have a high marginal value and a high marginal cost of production High price
中级微观经济学(课件)24 垄断
y
20102010-7-23
中级微观经济学
9
$
R(y) = p(y)y c(y)
y ∏(y)
20102010-7-23 中级微观经济学 10
$
R(y) = p(y)y c(y)
y*
y ∏(y)
20102010-7-23
中级微观经济学
11
$
R(y) = p(y)y c(y)
y*
y ∏(y)
20102010-7-23
pi pi = a - bXi* a ε = ∞ 有弹性 a/2
ε = 1
pi ε X* ,p = i i a pi
单位弹性 无弹性
ε=0
a/2b
20102010-7-23
a/b
中级微观经济学
Xi*
30
假定垄断者每单位产量的边际成本为常数$k 假定垄断者每单位产量的边际成本为常数 对一个利润最大化厂商, 对一个利润最大化厂商, 1 + 1 = k MR( y*) = p( y*) ε k p( y*) = . 即 1 1+ ε
20102010-7-23 中级微观经济学 31
p( y*) =
k 1 1+ ε
.
例如,当 ε = -3 时, p(y*) = 3k/2, 例如, 当 ε = -2 时, p(y*) = 2k. . 所以随着 ε 趋近于 -1 ,垄断厂商通过调整产量 提高价格的能力就越强. 提高价格的能力就越强.
20102010-7-23
中级微观经济学
26
d dp( y) MR( y) = (p( y)y) = p( y) + y dy dy y dp( y) = p( y ) 1 + . p( y) dy
中级微观讲义第二十七章
Chapter Twenty-Seven
Oligopoly 寡头垄断
Structure
Non-collusive
moves – Simultaneous moves Quantity competition –Cournot model Price competition – Bertrand model – Sequential moves Quantity leadership – Stakelberg model Price leadership Collusion
I.e. firm 1’s best response to y2 is 1 y1 R1 ( y2 ) 15 y2 . 4
60 2y1 y2 2y1 0. y1
Quantity Competition; An Example
y2 60
Firm 1’s “reaction curve”
1 * * * y1 R1 ( y2 ) 15 y2 4
and
* 45 y1 * * y2 R 2 ( y1 ) .
4
Substitute for y2* to get
* 1 45 y1 * * y1 15 y 1 13 4 4 45 13 * Hence y2 8. 4
Quantity Competition
Suppose
firm 1 takes firm 2’s output level choice y2 as given. Then firm 1 sees its profit function as
1 ( y1; y2 ) p( y1 y2 )y1 c1 ( y1 ).
Oligopoly 寡头垄断
Structure
Non-collusive
moves – Simultaneous moves Quantity competition –Cournot model Price competition – Bertrand model – Sequential moves Quantity leadership – Stakelberg model Price leadership Collusion
I.e. firm 1’s best response to y2 is 1 y1 R1 ( y2 ) 15 y2 . 4
60 2y1 y2 2y1 0. y1
Quantity Competition; An Example
y2 60
Firm 1’s “reaction curve”
1 * * * y1 R1 ( y2 ) 15 y2 4
and
* 45 y1 * * y2 R 2 ( y1 ) .
4
Substitute for y2* to get
* 1 45 y1 * * y1 15 y 1 13 4 4 45 13 * Hence y2 8. 4
Quantity Competition
Suppose
firm 1 takes firm 2’s output level choice y2 as given. Then firm 1 sees its profit function as
1 ( y1; y2 ) p( y1 y2 )y1 c1 ( y1 ).
GAME THEORY MODELS(博弈模型) 尼科尔森中级微观ppt
– can be an individual, a firm, an entire nation
• Each player has the ability to choose among a set of possible actions • The specific identity of the players is irrelevant
• This means that A will also choose to play music loudly • The A:L,B:L strategy choice obeys the criterion for a Nash equilibrium
• because L is a dominant strategy for B, it is the best choice no matter what A does • if A knows that B will follow his best strategy, then L is the best choice for A
The Prisoners’ Dilemma
• The most famous two-person game with an undesirable Nash equilibrium outcome
• games in which the strategies chosen by A and B are alternate levels of a single continuous variable • games where players use mixed strategies
19
Existence of Nash Equilibria
16
• Each player has the ability to choose among a set of possible actions • The specific identity of the players is irrelevant
• This means that A will also choose to play music loudly • The A:L,B:L strategy choice obeys the criterion for a Nash equilibrium
• because L is a dominant strategy for B, it is the best choice no matter what A does • if A knows that B will follow his best strategy, then L is the best choice for A
The Prisoners’ Dilemma
• The most famous two-person game with an undesirable Nash equilibrium outcome
• games in which the strategies chosen by A and B are alternate levels of a single continuous variable • games where players use mixed strategies
19
Existence of Nash Equilibria
16
微观经济学双语课件：ch13 垄断模型
• If the demand curve shifts, the marginal revenue curve shifts and a new profit-maximizing output will be chosen 如果需求曲线移动，边际收入曲线也会移动，将会选择一 个新的利润最大化产出
• the return to the factor that forms the basis of the monopoly 形成垄断的基础要素的报酬
13
Monopoly Profits垄断利润
• The size of monopoly profits in the long run will depend on the relationship between average costs and market demand for the product长期内垄断利润的大小，取决 于平均成本与该产品市场需求之间的关系
6
Creation of Barriers to Entry 制造进入障碍
• Some barriers to entry result from ac是由企业的行为造成的
– research and development of new products or technologies 新产品或技术的研究和发展
– The locus might have a very strange shape, depending on how the elasticity (and the associated MR curve) changes as the curve is shifted 这些连线的轨迹可能有着很奇怪的形状，主要取决于需求 的价格弹性(以及相应的边际收入线) 会怎样随之变化
• the return to the factor that forms the basis of the monopoly 形成垄断的基础要素的报酬
13
Monopoly Profits垄断利润
• The size of monopoly profits in the long run will depend on the relationship between average costs and market demand for the product长期内垄断利润的大小，取决 于平均成本与该产品市场需求之间的关系
6
Creation of Barriers to Entry 制造进入障碍
• Some barriers to entry result from ac是由企业的行为造成的
– research and development of new products or technologies 新产品或技术的研究和发展
– The locus might have a very strange shape, depending on how the elasticity (and the associated MR curve) changes as the curve is shifted 这些连线的轨迹可能有着很奇怪的形状，主要取决于需求 的价格弹性(以及相应的边际收入线) 会怎样随之变化
Lecture 12. Monopoly 范里安版《中级微观经济学》ppt
21
Price Regulation
If left alone, a monopolist $/output unit produces ym and charges Pm.
MR
MC
Pm
P2 = PC
P1
If price is lower than PC, a shortage exists.
Any price below P1 results in the firm incurring a loss.
dy dy
dy
◊ So, for y = y*,
d p(y*)y* dc(y*)
dy
dy
3
An Linear Example
◊ E.g. if p(y) = a–by. Then
◊ So
R(y)p(y)ya yb2y M ( y ) a R 2 b a y b p y ( y )
◊ In 1995, a new antiulcer medication, Prilosec, was invented. It was much more effective than earlier drugs.
◊ Astra-Merck was pricing Prilosec at about $3.50 per daily dose, but the marginal cost of Prilosec is only about 30 to 40 cents per daily dose.
AC
Demand
If price is lowered to PC, output is yC and there is no
ym y1 ydceadweight lossy. 22
Price Regulation
If left alone, a monopolist $/output unit produces ym and charges Pm.
MR
MC
Pm
P2 = PC
P1
If price is lower than PC, a shortage exists.
Any price below P1 results in the firm incurring a loss.
dy dy
dy
◊ So, for y = y*,
d p(y*)y* dc(y*)
dy
dy
3
An Linear Example
◊ E.g. if p(y) = a–by. Then
◊ So
R(y)p(y)ya yb2y M ( y ) a R 2 b a y b p y ( y )
◊ In 1995, a new antiulcer medication, Prilosec, was invented. It was much more effective than earlier drugs.
◊ Astra-Merck was pricing Prilosec at about $3.50 per daily dose, but the marginal cost of Prilosec is only about 30 to 40 cents per daily dose.
AC
Demand
If price is lowered to PC, output is yC and there is no
ym y1 ydceadweight lossy. 22
TRADITIONAL MODELS OF IMPERFECT COMPETITION(传统模式的不完全竞争) 尼科尔森中级微观ppt
• The assumption of price-taking behavior may be inappropriate in oligopolistic industries
– each firm can recognize that its output decision will affect price
• The cartel solution to this problem can be found by maximizing industry revenue (and profits)
= PQ = 120Q - Q2
• The first-order condition is
/Q = 120 - 2Q = 0
– P is treated as fixed
• The cartel model assumes that firms can collude perfectly in choosing industry output and P
5
Oligopoly Pricing Models
• The Cournot model assumes that firm i treats firm j’s output as fixed in its decisions
– qj/qi = 0
• The conjectural variations model assumes that firm j’s output will respond to variations in firm i’s output
– qj/qi 0
6
Quasi-Competitive Model
• We will assume that the market is perfectly competitive on the demand side
– each firm can recognize that its output decision will affect price
• The cartel solution to this problem can be found by maximizing industry revenue (and profits)
= PQ = 120Q - Q2
• The first-order condition is
/Q = 120 - 2Q = 0
– P is treated as fixed
• The cartel model assumes that firms can collude perfectly in choosing industry output and P
5
Oligopoly Pricing Models
• The Cournot model assumes that firm i treats firm j’s output as fixed in its decisions
– qj/qi = 0
• The conjectural variations model assumes that firm j’s output will respond to variations in firm i’s output
– qj/qi 0
6
Quasi-Competitive Model
• We will assume that the market is perfectly competitive on the demand side
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– some economists refer to the profits that a monopoly earns in the long run as monopoly rents
• the return to the factor that forms the basis of the monopoly
C
MR Q*
D
Quantity 10
The Inverse Elasticity Rule
• The gap between a firm’s price and its marginal cost is inversely related to the price elasticity of demand facing the firm
4
Technical Barriers to Entry
• Another technical basis of monopoly is special knowledge of a low-cost productive technique
– it may be difficult to keep this knowledge out of the hands of other firms
Chapter 13
MODELS OF MONOPOLY
Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved.
1
Monopoly
• A monopoly is a single supplier to a market • This firm may choose to produce at any point on the market demand curve
14
Monopoly Profits
Price
MC
Price
MC AC
AC P* P*=AC
C
MR Q*
D
MR
D
Quantity
Q*
Quantity
15
Positive profits
Zero profit
No Monopoly Supply Curve
• With a fixed market demand curve, the supply “curve” for a monopolist will only be one point
– there are two general types of barriers to entry
• technical barriers • legal barriers
3
Technical Barriers to Entry
• The production of a good may exhibit decreasing marginal and average costs over a wide range of output levels
– a monopoly will choose to operate only in regions where the market demand curve is elastic
• eQ,P < -1
– the firm’s “markup” over marginal cost depends inversely on the elasticity of market demand
– the price-output combination where MR = MC
• If the demand curve shifts, the marginal revenue curve shifts and a new profitmaximizing output will be chosen
• Ownership of unique resources may also be a lasting basis for maintaining a monopoly
5
Legal Barriers to Entry
• Many pure monopolies are created as a matter of law
eQ,P Q P 75 20 3 P Q 500
20
Monopoly with Linear Demand
• The inverse elasticity rule specifies that
P MC 1 1 P eQ,P 3
• Since P* = 75 and MC = 50, this relationship holds
– in this situation, relatively large-scale firms are low-cost producers
• firms may find it profitable to drive others out of the industry by cutting prices • this situation is known as natural monopoly • once the monopoly is established, entry of new firms will be difficult
2
Barriers to Entry
• The reason a monopoly exists is that other firms find it unprofitable or impossible to enter the market • Barriers to entry are the source of all monopoly power
100 - Q/10 = 0.01Q
Q* = 500
P* = 75
• At the profit-maximizing output,
C(Q) = 0.05(500)2 + 10,000 = 22,500 AC = 22,500/500 = 45 = (P* - AC)Q = (75 - 45)500 = 15,000
– with a patent, the basic technology for a product is assigned to one firm – the government may also award a firm an exclusive franchise to serve a market
P MC 1 P eQ,P
where eQ,P is the elasticity of demand for the entire market
11
The Inverse Elasticity Rule
• Two general conclusions about monopoly pricing can be drawn:
6
Creation of Barriers to Entry
• Some barriers to entry result from actions taken by the firm
– research and development of new products or technologies – purchase of unique resources – lobbying efforts to gain monopoly power
• The attempt by a monopolist to erect barriers to entry may involve real resource costs
7
Profit Maximization
• To maximize profits, a monopolist will choose to produce that output level for which marginal revenue is equal to marginal cost
13
Monopoly Profits
• The size of monopoly profits in the long run will depend on the relationship between average costs and market demand for the product
9
Profit Maximization
Price MC
The monopolist will maximize profits where MR = MC
AC
P*
The firm will charge a price of P*
Profits can be found in the shaded rectangle
TR = PQ = 100Q - Q2/20
• Therefore, marginal revee marginal cost is
MC = 0.01Q
18
Monopoly with Linear Demand
• Thus, MR = MC where
C(Q) = 0.05Q2 + 10,000
17
Monopoly with Linear Demand
• To maximize profits, the monopolist chooses the output for which MR = MC • We need to find total revenue
19
Monopoly with Linear Demand
• To see that the inverse elasticity rule holds, we can calculate the elasticity of demand at the monopoly’s profitmaximizing level of output
• the return to the factor that forms the basis of the monopoly
C
MR Q*
D
Quantity 10
The Inverse Elasticity Rule
• The gap between a firm’s price and its marginal cost is inversely related to the price elasticity of demand facing the firm
4
Technical Barriers to Entry
• Another technical basis of monopoly is special knowledge of a low-cost productive technique
– it may be difficult to keep this knowledge out of the hands of other firms
Chapter 13
MODELS OF MONOPOLY
Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved.
1
Monopoly
• A monopoly is a single supplier to a market • This firm may choose to produce at any point on the market demand curve
14
Monopoly Profits
Price
MC
Price
MC AC
AC P* P*=AC
C
MR Q*
D
MR
D
Quantity
Q*
Quantity
15
Positive profits
Zero profit
No Monopoly Supply Curve
• With a fixed market demand curve, the supply “curve” for a monopolist will only be one point
– there are two general types of barriers to entry
• technical barriers • legal barriers
3
Technical Barriers to Entry
• The production of a good may exhibit decreasing marginal and average costs over a wide range of output levels
– a monopoly will choose to operate only in regions where the market demand curve is elastic
• eQ,P < -1
– the firm’s “markup” over marginal cost depends inversely on the elasticity of market demand
– the price-output combination where MR = MC
• If the demand curve shifts, the marginal revenue curve shifts and a new profitmaximizing output will be chosen
• Ownership of unique resources may also be a lasting basis for maintaining a monopoly
5
Legal Barriers to Entry
• Many pure monopolies are created as a matter of law
eQ,P Q P 75 20 3 P Q 500
20
Monopoly with Linear Demand
• The inverse elasticity rule specifies that
P MC 1 1 P eQ,P 3
• Since P* = 75 and MC = 50, this relationship holds
– in this situation, relatively large-scale firms are low-cost producers
• firms may find it profitable to drive others out of the industry by cutting prices • this situation is known as natural monopoly • once the monopoly is established, entry of new firms will be difficult
2
Barriers to Entry
• The reason a monopoly exists is that other firms find it unprofitable or impossible to enter the market • Barriers to entry are the source of all monopoly power
100 - Q/10 = 0.01Q
Q* = 500
P* = 75
• At the profit-maximizing output,
C(Q) = 0.05(500)2 + 10,000 = 22,500 AC = 22,500/500 = 45 = (P* - AC)Q = (75 - 45)500 = 15,000
– with a patent, the basic technology for a product is assigned to one firm – the government may also award a firm an exclusive franchise to serve a market
P MC 1 P eQ,P
where eQ,P is the elasticity of demand for the entire market
11
The Inverse Elasticity Rule
• Two general conclusions about monopoly pricing can be drawn:
6
Creation of Barriers to Entry
• Some barriers to entry result from actions taken by the firm
– research and development of new products or technologies – purchase of unique resources – lobbying efforts to gain monopoly power
• The attempt by a monopolist to erect barriers to entry may involve real resource costs
7
Profit Maximization
• To maximize profits, a monopolist will choose to produce that output level for which marginal revenue is equal to marginal cost
13
Monopoly Profits
• The size of monopoly profits in the long run will depend on the relationship between average costs and market demand for the product
9
Profit Maximization
Price MC
The monopolist will maximize profits where MR = MC
AC
P*
The firm will charge a price of P*
Profits can be found in the shaded rectangle
TR = PQ = 100Q - Q2/20
• Therefore, marginal revee marginal cost is
MC = 0.01Q
18
Monopoly with Linear Demand
• Thus, MR = MC where
C(Q) = 0.05Q2 + 10,000
17
Monopoly with Linear Demand
• To maximize profits, the monopolist chooses the output for which MR = MC • We need to find total revenue
19
Monopoly with Linear Demand
• To see that the inverse elasticity rule holds, we can calculate the elasticity of demand at the monopoly’s profitmaximizing level of output