nicholson微观经济理论（答案+ppt+习题库）-180-03-033593-0

MODELSOFMONOPOLYAMONOPOLYISASINGLERMTHATSERVESANENTIREMARKETTHISSINGLERMFACESTHEMARKETDEMANDCURVEFORITSOUTPUTUSINGITSKNOWLEDGEOFTHISDEMANDCURVE,THEMONOPOLYMAKESADECISIONONHOWMUCHTOPRODUCEUNLIKETHEPERFECTLYCOMPETITIVERMSOUTPUTDECISIONWHICHHASNOEFFECTONMARKETPRICE,THEMONOPOLYSOUTPUTDECISIONWILL,INFACT,DETERMINETHEGOODSPRICEINTHISSENSEMONOPOLYMARKETSANDMARKETSCHARACTERIZEDBYPERFECTCOMPETITIONAREPOLAROPPOSITECASESATTIMESITISMORECONVENIENTTOTREATMONOPOLIESASHAVINGTHEPOWERTOSETPRICESTECHNICALLY,AMONOPOLYCANCHOOSETHATPOINTONTHEMARKETDEMANDCURVEATWHICHITPREFERSTOOPERATEITMAYCHOOSEEITHERMARKETPRICEORQUANTITY,BUTNOTBOTHINTHISCHAPTERWEWILLUSUALLYASSUMETHATMONOPOLIESCHOOSETHEQUANTITYOFOUTPUTTHATMAXIMIZESPROTSANDTHENSETTLEFORTHEMARKETPRICETHATTHECHOSENOUTPUTLEVELYIELDSITWOULDBEASIMPLEMATTERTOREPHRASETHEDISCUSSIONINTERMSOFPRICESETTING,ANDINSOMEPLACESWESHALLDOSOGIVENTHESECONVENTIONS,WEDENEAMONOPOLYASFOLLOWSMONOPOLYAMONOPOLYISASINGLESUPPLIERTOAMARKETTHISRMMAYCHOOSETOPRODUCEATANYPOINTONTHEMARKETDEMANDCURVEDEFINITION18CHAPTERBARRIERSTOENTRYTHEREASONAMONOPOLYEXISTSISTHATOTHERRMSNDITUNPROTABLEORIMPOSSIBLETOENTERTHEMARKETBARRIERSTOENTRYARETHEREFORETHESOURCEOFALLMONOPOLYPOWERIFOTHERRMSCOULDENTERAMARKET,THERMWOULD,BYDENITION,NOLONGERBEAMONOPOLYTHEREARETWOGENERALTYPESOFBARRIERSTOENTRYTECHNICALBARRIERSANDLEGALBARRIERSTECHNICALBARRIERSTOENTRYAPRIMARYTECHNICALBARRIERISTHATTHEPRODUCTIONOFTHEGOODINQUESTIONMAYEXHIBITDECREASINGMARGINALANDAVERAGECOSTSOVERAWIDERANGEOFOUTPUTLEVELSTHETECHNOLOGYOFPRODUCTIONISSUCHTHATRELATIVELYLARGESCALERMSARELOWCOSTPRODUCERSINTHISSITUATIONWHICHISSOMETIMESREFERREDTOASNATURALMONOPOLYONERMMAYNDITPROTABLETODRIVEOTHERSOUTOFTHEINDUSTRYBYCUTTINGPRICESSIMILARLY,ONCEAMONOPOLYHASBEENESTABLISHED,ENTRYWILLBEDIFCULTBECAUSEANYNEWRMMUSTPRODUCEATRELATIVELYLOWLEVELSOFOUTPUTANDTHEREFOREATRELATIVELYHIGHAVERAGECOSTSITISIMPORTANTTOSTRESSTHATTHERANGEOFDECLININGCOSTSNEEDONLYBE“LARGE”RELATIVETOTHEMARKETINQUESTIONDECLININGCOSTSONSOMEABSOLUTESCALEARENOTNECESSARYFOREXAMPLE,THEPRODUCTIONANDDELIVERYOFCONCRETEDOESNOTEXHIBITDECLININGMARGINALCOSTSOVERABROADRANGEOFOUTPUTWHENCOMPAREDTOTHETOTALUSMARKETHOWEVER,INANYPARTICULARSMALLTOWN,DECLININGMARGINALCOSTSMAYPERMITAMONOPOLYTOBEESTABLISHEDTHEHIGHCOSTSOFTRANSPORTATIONINTHISINDUSTRYTENDTOISOLATEONEMARKETFROMANOTHERANOTHERTECHNICALBASISOFMONOPOLYISSPECIALKNOWLEDGEOFALOWCOSTPRODUCTIVETECHNIQUEBUTTHEPROBLEMFORTHEMONOPOLYTHATFEARSENTRYISKEEPINGTHISTECHNIQUEUNIQUELYTOITSELFWHENMATTERSOFTECHNOLOGYAREINVOLVED,THISMAYBEEXTREMELYDIFCULT,UNLESSTHETECHNOLOGYCANBEPROTECTEDBYAPATENTSEEBELOWOWNERSHIPOFUNIQUERESOURCES,SUCHASMINERALDEPOSITSORLANDLOCATIONS,ORTHEPOSSESSIONOFUNIQUEMANAGERIALTALENTSMAYALSOBEALASTINGBASISFORMAINTAININGAMONOPOLYLEGALBARRIERSTOENTRYMANYPUREMONOPOLIESARECREATEDASAMATTEROFLAWRATHERTHANASAMATTEROFECONOMICCONDITIONSONEIMPORTANTEXAMPLEOFAGOVERNMENTGRANTEDMONOPOLYPOSITIONISINTHELEGALPROTECTIONOFAPRODUCTIVETECHNIQUEBYAPATENTXEROXMACHINESANDPOLAROIDCAMERASARENOTABLEEXAMPLESOFHIGHLYSUCCESSFULPRODUCTSTHATWEREPROTECTEDFROMCOMPETITIONFORAWHILEBYALABYRINTHOFPATENTSBECAUSETHEBASICTECHNOLOGYFORTHESEPRODUCTSWASUNIQUELYASSIGNEDTOONERM,AMONOPOLYPOSITIONWASESTABLISHEDTHEDEFENSEMADEOFSUCHAGOVERNMENTALLYGRANTEDMONOPOLYPOSITIONISTHATTHEPATENTSYSTEMMAKESINNOVATIONMOREPROFITABLEANDTHEREFOREACTSASANINCENTIVETOTECHNICALPROGRESSWHETHERTHEBENETSOFSUCHINNOVATIVEBEHAVIOREXCEEDTHECOSTSOFHAVINGTECHNOLOGICALMONOPOLIESISANOPENQUESTIONASECONDEXAMPLEOFALEGALLYCREATEDMONOPOLYISTHEAWARDINGOFANEXCLUSIVEFRANCHISETOSERVEAMARKETTHESEFRANCHISESAREAWARDEDINCASESOFPUBLICUTILITYGASANDELECTRICSERVICE,COMMUNICATIONSSERVICES,THEPOSTOFCE,SOMETELEVISIONANDRADIOSTATIONMARKETS,ANDAVARIETYOFOTHERSITUATIONSTHEARGUMENTUSUALLY496PARTVIMODELSOFIMPERFECTCOMPETITIONPUTFORWARDINFAVOROFCREATINGTHESEFRANCHISEDMONOPOLIESISTHATTHEINDUSTRYINQUESTIONISANATURALMONOPOLYAVERAGECOSTISDIMINISHINGOVERABROADRANGEOFOUTPUTLEVELS,ANDMINIMUMAVERAGECOSTCANBEACHIEVEDONLYBYORGANIZINGTHEINDUSTRYASAMONOPOLYTHEPUBLICUTILITYANDCOMMUNICATIONSINDUSTRIESAREOFTENCONSIDEREDGOODEXAMPLESCERTAINLY,THATDOESAPPEARTOBETHECASEFORLOCALELECTRICITYANDTELEPHONESERVICEWHEREAGIVENNETWORKPROBABLYEXHIBITSDECLININGAVERAGECOSTUPTOTHEPOINTOFUNIVERSALCOVERAGEBUTRECENTDEREGULATIONINTELEPHONESERVICESANDELECTRICITYGENERATIONSHOWTHAT,EVENFORTHESEINDUSTRIES,THENATURALMONOPOLYRATIONALEMAYNOTBEALLINCLUSIVEINOTHERCASES,FRANCHISESMAYBEBASEDLARGELYONPOLITICALRATIONALESTHISSEEMSTOBETRUEFORTHEPOSTALSERVICEINTHEUNITEDSTATESANDFORANUMBEROFNATIONALIZEDINDUSTRIESAIRLINES,RADIOANDTELEVISION,BANKINGINOTHERCOUNTRIESCREATIONOFBARRIERSTOENTRYALTHOUGHSOMEBARRIERSTOENTRYMAYBEINDEPENDENTOFTHEMONOPOLISTSOWNACTIVITIES,OTHERBARRIERSMAYRESULTDIRECTLYFROMTHOSEACTIVITIESFOREXAMPLE,RMSMAYDEVELOPUNIQUEPRODUCTSORTECHNOLOGIESANDTAKEEXTRAORDINARYSTEPSTOKEEPTHESEFROMBEINGCOPIEDBYCOMPETITORSORRMSMAYBUYUPUNIQUERESOURCESTOPREVENTPOTENTIALENTRYTHEDEBEERSCARTEL,FOREXAMPLE,CONTROLSAHIGHFRACTIONOFTHEWORLDSDIAMONDMINESFINALLY,AWOULDBEMONOPOLISTMAYENLISTGOVERNMENTAIDINDEVISINGBARRIERSTOENTRYITMAYLOBBYFORLEGISLATIONTHATRESTRICTSNEWENTRANTSSOASTO“MAINTAINANORDERLYMARKET,”ORFORHEALTHANDSAFETYREGULATIONSTHATRAISEPOTENTIALENTRANTSCOSTSBECAUSETHEMONOPOLISTHASBOTHSPECIALKNOWLEDGEOFITSBUSINESSANDSIGNICANTINCENTIVESTOPURSUETHESEGOALS,ITMAYHAVECONSIDERABLESUCCESSINCREATINGSUCHBARRIERSTOENTRYTHEATTEMPTBYAMONOPOLISTTOERECTBARRIERSTOENTRYMAYINVOLVEREALRESOURCECOSTSMAINTAININGSECRECY,BUYINGUNIQUERESOURCES,ANDENGAGINGINPOLITICALLOBBYINGAREALLCOSTLYACTIVITIESAFULLANALYSISOFMONOPOLYSHOULDINVOLVENOTONLYQUESTIONSOFCOSTMINIMIZATIONANDOUTPUTCHOICEASUNDERPERFECTCOMPETITION,BUTALSOANANALYSISOFPROTMAXIMIZINGENTRYBARRIERCREATIONHOWEVER,WEWILLNOTPROVIDEADETAILEDINVESTIGATIONOFSUCHQUESTIONSHERE1INSTEAD,WEWILLGENERALLYASSUMETHATTHEMONOPOLISTCANDONOTHINGTOAFFECTBARRIERSTOENTRYANDTHATTHERMSCOSTSARETHEREFORESIMILARTOWHATACOMPETITIVERMSCOSTSWOULDBEATTIMES,HOWEVER,WEWILLMENTIONSOMEOFTHECOMPLICATIONSRAISEDBYTHEPOSSIBILITYOFEXPENDITURESINCURREDTOPROTECTAMONOPOLISTSMARKETAMORECOMPLETEDISCUSSIONOFTHESE“RENTSEEKING”EXPENDITURESISPRESENTEDINCHAPTER25PROTMAXIMIZATIONANDOUTPUTCHOICETOMAXIMIZEPROTS,AMONOPOLYWILLCHOOSETOPRODUCETHATOUTPUTLEVELFORWHICHMARGINALREVENUEISEQUALTOMARGINALCOSTBECAUSETHEMONOPOLY,INCONTRASTTOAPERFECTLYCOMPETITIVERM,FACESANEGATIVELYSLOPEDMARKETDEMANDCURVE,MARGINALREVENUEWILLBELESSTHANPRICETOSELLANADDITIONALUNIT,THEMONOPOLYMUSTLOWERITSPRICEONALLUNITSTOBESOLDIFITISTOGENERATETHEEXTRADEMANDNECESSARYCHAPTER18MODELSOFMONOPOLY4971FORASIMPLETREATMENT,SEERAPOSNER,“THESOCIALCOSTSOFMONOPOLYANDREGULATION,”JOURNALOFPOLITICALECONOMY83AUGUST1975807827TOABSORBTHISMARGINALUNITTHEPROTMAXIMIZINGOUTPUTLEVELFORARMISTHENTHELEVELQINFIGURE181ATTHATLEVELMARGINALREVENUEISEQUALTOMARGINALCOSTS,ANDPROTSAREMAXIMIZEDGIVENTHEMONOPOLYSDECISIONTOPRODUCEQ,THEDEMANDCURVEDINDICATESTHATAMARKETPRICEOFPWILLPREVAILTHISISTHEPRICETHATDEMANDERSASAGROUPAREWILLINGTOPAYFORTHEOUTPUTOFTHEMONOPOLYINTHEMARKET,ANEQUILIBRIUMPRICEQUANTITYCOMBINATIONOFP,QWILLBEOBSERVEDASSUMINGPH11022AC,THISOUTPUTLEVELWILLBEPROTABLE,ANDTHEMONOPOLISTWILLHAVENOINCENTIVETOALTEROUTPUTLEVELSUNLESSDEMANDORCOSTCONDITIONSCHANGEHENCEWEHAVETHEFOLLOWINGPRINCIPLEMONOPOLISTSOUTPUTAMONOPOLISTWILLCHOOSETOPRODUCETHATOUTPUTFORWHICHMARGINALREVENUEEQUALSMARGINALCOSTBECAUSETHEMONOPOLISTFACESADOWNWARDSLOPINGDEMANDCURVE,MARKETPRICEWILLEXCEEDMARGINALREVENUEANDTHERMSMARGINALCOSTATTHISOUTPUTLEVELTHEINVERSEELASTICITYRULE,AGAININCHAPTER13WESHOWEDTHATTHEASSUMPTIONOFPROTMAXIMIZATIONIMPLIESTHATTHEGAPBETWEENAPRICEOFARMSOUTPUTANDITSMARGINALCOSTISINVERSELYRELATEDOPTIMIZATIONPRINCIPLE498PARTVIMODELSOFIMPERFECTCOMPETITIONPROTMAXIMIZATIONANDPRICEDETERMINATIONFORAMONOPOLYAPROTMAXIMIZINGMONOPOLISTPRODUCESTHATQUANTITYFORWHICHMARGINALREVENUEISEQUALTOMARGINALCOSTINTHEDIAGRAMTHISQUANTITYISGIVENBYQ,WHICHWILLYIELDAPRICEOFPINTHEMARKETMONOPOLYPROTSCANBEREADASTHERECTANGLEOFPEACPRICE,COSTSDMCACDMRQCPAEOUTPUTPERPERIODFIGURE181TOTHEPRICEELASTICITYOFTHEDEMANDCURVEFACINGTHERMAPPLYINGEQUATION1313TOTHECASEOFMONOPOLYYIELDSH11005H11002,181WHERENOWWEUSETHEELASTICITYOFDEMANDFORTHEENTIREMARKETEQ,PBECAUSETHEMONOPOLYISTHESOLESUPPLIEROFTHEGOODINQUESTIONTHISOBSERVATIONLEADSTOTWOGENERALCONCLUSIONSABOUTMONOPOLYPRICINGFIRST,AMONOPOLYWILLCHOOSETOOPERATEONLYINREGIONSINWHICHTHEMARKETDEMANDCURVEISELASTICEQ,PH11021H110021IFDEMANDWEREINELASTIC,MARGINALREVENUEWOULDBENEGATIVEANDCOULDNOTTHEREFOREBEEQUATEDTOMARGINALCOSTWHICHPRESUMABLYISALWAYSPOSITIVEEQUATION181ALSOSHOWSTHATEQ,PH11022H110021IMPLIESANIMPLAUSIBLENEGATIVEMARGINALCOSTASECONDIMPLICATIONOFEQUATION181ISTHATTHERMS“MARKUP”OVERMARGINALCOSTMEASUREDASAFRACTIONOFPRICEDEPENDSINVERSELYONTHEELASTICITYOFMARKETDEMANDIF,FOREXAMPLE,EQ,PH11005H110022,EQUATION181SHOWSTHATPH110052MC,WHEREASIFEQ,PH11005H1100210,PH11005111MCNOTICEALSOTHATIFTHEELASTICITYOFDEMANDWERECONSTANTALONGTHEENTIREDEMANDCURVE,THEPROPORTIONALMARKUPOVERMARGINALCOSTWOULDREMAINUNCHANGEDINRESPONSETOCHANGESININPUTCOSTSMARKETPRICE,THEREFORE,MOVESPROPORTIONALLYTOMARGINALCOSTINCREASESINMARGINALCOSTWILLPROMPTTHEMONOPOLYTOINCREASEITSPRICEPROPORTIONALLY,ANDDECREASESINMARGINALCOSTWILLCAUSETHEMONOPOLYTOREDUCEITSPRICEPROPORTIONALLYEVENIFELASTICITYISNOTCONSTANTALONGTHEDEMANDCURVE,ITSEEMSCLEARFROMFIGURE181THATINCREASESINMARGINALCOSTWILLINCREASEPRICETHOUGHNOTNECESSARILYINTHESAMEPROPORTIONSOLONGASTHEDEMANDCURVEFACINGTHEMONOPOLYISDOWNWARDSLOPING,UPWARDSHIFTSINMCWILLPROMPTTHEMONOPOLYTOREDUCEOUTPUTANDTHEREBYOBTAINAHIGHERPRICE2MONOPOLYPROTSTOTALPROTSEARNEDBYTHEMONOPOLISTCANBEREADDIRECTLYFROMFIGURE181THESEARESHOWNBYTHERECTANGLEPEACANDAGAINREPRESENTTHEPROTPERUNITPRICEMINUSAVERAGECOSTTIMESTHENUMBEROFUNITSSOLDTHESEPROTSWILLBEPOSITIVEIFMARKETPRICEEXCEEDSAVERAGETOTALCOSTIFPH11021AC,HOWEVER,THEMONOPOLISTCANONLYOPERATEATALONGTERMLOSSANDWILLDECLINETOSERVETHEMARKETBECAUSE,BYASSUMPTION,NOENTRYISPOSSIBLEINTOAMONOPOLYMARKET,THEMONOPOLISTSPOSITIVEPROTSCANEXISTEVENINTHELONGRUNFORTHISREASONSOMEAUTHORSREFERTOTHEPROTSTHATAMONOPOLYEARNSINTHELONGRUNASMONOPOLYRENTSTHESEPROTSCANBEREGARDEDASARETURNTOTHATFACTORTHATFORMSTHEBASISOFTHEMONOPOLYAPATENT,AFAVORABLELOCATION,ORADYNAMICENTREPRENEUR,FOREXAMPLEHENCEANOTHERPOSSIBLEOWNERMIGHTBEWILLINGTOPAYTHATAMOUNTINRENTFORTHERIGHTTOTHEMONOPOLYTHEPOTENTIALFORPROTSISTHEREASONWHYSOMERMSPAYOTHERRMSFORTHERIGHTTOUSEAPATENTANDWHYCONCESSIONERSATSPORTINGEVENTSANDONSOMEHIGHWAYSAREWILLINGTOPAYFORTHERIGHTTOTHECONCESSIONTOTHEEXTENTMONOPOLYRIGHTSAREGIVENAWAYATBELOWTHEIRTRUEMARKETVALUEASINRADIOANDTELEVISIONLICENSING,THEWEALTHOFTHERECIPIENTSOFTHOSERIGHTSISINCREASED1H5007EQ,PPH11002MCH5007PCHAPTER18MODELSOFMONOPOLY4992THECOMPARATIVESTATICSOFASHIFTINTHEDEMANDCURVEFACINGTHEMONOPOLISTARENOTSOCLEAR,HOWEVER,ANDNOUNEQUIVOCALPREDICTIONABOUTPRICECANBEMADEFORANANALYSISOFTHISISSUE,SEETHEDISCUSSIONTHATFOLLOWSANDPROBLEM184ALTHOUGHAMONOPOLYMAYEARNPOSITIVEPROTSINTHELONGRUN,3THESIZEOFSUCHPROTSWILLDEPENDONTHERELATIONSHIPBETWEENTHEMONOPOLISTSAVERAGECOSTSANDTHEDEMANDFORITSPRODUCTFIGURE182ILLUSTRATESTWOSITUATIONSINWHICHTHEDEMAND,MARGINALREVENUE,ANDMARGINALCOSTCURVESARERATHERSIMILARASEQUATION181SUGGESTS,THEPRICEMARGINALCOSTMARKUPISABOUTTHESAMEINTHESETWOCASESBUTAVERAGECOSTSINFIGURE182AARECONSIDERABLYLOWERTHANINFIGURE182BALTHOUGHTHEPROTMAXIMIZINGDECISIONSARESIMILARINTHETWOCASES,THELEVELOFPROTSENDSUPBEINGQUITEDIFFERENTINFIGURE182ATHEMONOPOLISTSPRICEPEXCEEDSTHEAVERAGECOSTOFPRODUCINGQLABELEDACBYALARGEEXTENT,ANDSIGNICANTPROTSAREOBTAINEDINFIGURE182B,HOWEVER,PH11005ACANDTHEMONOPOLYEARNSZEROECONOMICPROTS,THELARGESTAMOUNTPOSSIBLEINTHISCASEHENCE,LARGEPROTSFROMAMONOPOLYARENOTINEVITABLE,ANDTHEACTUALEXTENTOFECONOMICPROTSMAYNOTALWAYSBEAGOODGUIDETOTHESIGNICANCEOFMONOPOLISTICINUENCESINAMARKETTHEREISNOMONOPOLYSUPPLYCURVEINTHETHEORYOFPERFECTLYCOMPETITIVEMARKETSWEPRESENTEDINPARTV,ITWASPOSSIBLETOSPEAKOFANINDUSTRYSUPPLYCURVEWECONSTRUCTEDTHELONGRUNSUPPLYCURVEBYALLOWINGTHEMARKETDEMANDCURVETOSHIFTANDOBSERVINGTHESUPPLYCURVETHATWASTRACEDOUTBYTHESERIESOFEQUILIBRIUMPRICEQUANTITYCOMBINATIONSTHISTYPEOFCONSTRUCTIONISNOTPOSSIBLEFORMONOPOLISTICMARKETSWITHAXEDMARKETDEMANDCURVE,THESUPPLY“CURVE”FORAMONOPOLYWILLBEONLYONEPOINT,NAMELY,THATPRICEQUANTITYCOMBINATIONFORWHICHMRH11005MCIFTHEDEMANDCURVESHOULDSHIFT,THEMARGINALREVENUECURVEWOULDALSOSHIFT,ANDANEWPROTMAXIMIZINGOUTPUTWOULDBECHOSENHOWEVER,CONNECTINGTHERESULTINGSERIESOFEQUILIBRIUMPOINTSONTHEMARKETDEMANDCURVESWOULDHAVELITTLEMEANINGTHISLOCUSMIGHTHAVEAVERYSTRANGESHAPE,DEPENDINGONHOWTHEMARKETDEMANDCURVESELASTICITYANDITSASSOCIATEDMRCURVECHANGESASTHECURVEISSHIFTEDINTHISSENSETHEMONOPOLYRMHASNOWELLDENED“SUPPLYCURVE”EXAMPLE181MONOPOLYWITHLINEARDEMANDSUPPOSETHEMARKETFOROLYMPICQUALITYFRISBEESQ,MEASUREDINFRISBEESBOUGHTPERYEARHASALINEARDEMANDCURVEOFTHEFORMQH110052,000H1100220P182ORPH11005100H11002Q/20,183ANDTHATTHECOSTSOFAMONOPOLYFRISBEEPRODUCERAREGIVENBYTCH1100505Q2H1100110,000184500PARTVIMODELSOFIMPERFECTCOMPETITION3ASINTHECOMPETITIVECASE,THEPROTMAXIMIZINGMONOPOLISTWOULDBEWILLINGTOPRODUCEATALOSSINTHESHORTRUNASLONGASMARKETPRICEEXCEEDSAVERAGEVARIABLECOSTTOMAXIMIZEPROTS,THISPRODUCERCHOOSESTHATOUTPUTLEVELFORWHICHMRH11005MCTOSOLVETHISPROBLEMWEMUSTPHRASEBOTHMRANDMCASFUNCTIONSOFQALONETODOSO,WRITETOTALREVENUEASPH11080QH11005100QH11002Q2/20185CONSEQUENTLYMRH11005100H11002Q/10H11005MCH110051Q186ANDQH11005500PH1100575187ATTHEMONOPOLYSPREFERREDOUTPUTLEVEL,TCH11005055002H1100110,000H1100522,500188ACH1100522,500/500H1100545USINGTHISINFORMATIONWECANCALCULATEPROTSBYH9266H11005PH11002ACH11080QH1100575H1100245H11080500H1100515,000189NOTICETHATATTHISEQUILIBRIUMTHEREISALARGEMARKUPBETWEENPRICE75ANDMARGINALCOSTMCH110051QH1100550ASLONGASENTRYBARRIERSPREVENTANEWRMFROMCHAPTER18MODELSOFMONOPOLY501MONOPOLYPROTSDEPENDONTHERELATIONSHIPBETWEENTHEDEMANDANDAVERAGECOSTCURVESBOTHOFTHEMONOPOLIESINTHISGUREAREEQUALLY“STRONG,”IFBYTHISWEMEANTHEYPRODUCESIMILARDIVERGENCESBETWEENMARKETPRICEANDMARGINALCOSTHOWEVER,BECAUSEOFTHELOCATIONOFTHEDEMANDANDAVERAGECOSTCURVES,ITTURNSOUTTHATTHEMONOPOLYINAEARNSHIGHPROTSWHEREASTHATINBEARNSNOPROTSCONSEQUENTLY,THESIZEOFPROTSISNOTAMEASUREOFTHESTRENGTHOFAMONOPOLYPRICEDMCACDMRQCPPH11005ACQUANTITYPERPERIODAMONOPOLYWITHLARGEPROFITSPRICEQQUANTITYPERPERIODBZEROPROFITMONOPOLYMCMRDDACFIGURE182PRODUCINGOLYMPICQUALITYFRISBEES,HOWEVER,THISGAPANDPOSITIVEECONOMICPROFITSCANPERSISTINDENITELYANILLUSTRATIONOFTHEINVERSEELASTICITYRULETOSEETHATTHEINVERSEELASTICITYRULEHOLDS,WENEEDTOCOMPUTETHEELASTICITYOFDEMANDATTHEMONOPOLYSEQUILIBRIUMPOINTEQ,PH11005H11080H11005H1100220H20898H20899H11005H1100231810SO,BYEQUATION181H11005OR1811PH11005MC,WHICHISINDEEDTHERELATIONSHIPBETWEENTHEEQUILIBRIUMPRICE75ANDTHEMONOPOLYSMARGINALCOST50QUERYHOWWOULDANINCREASEINXEDCOSTSFROM10,000TO12,500AFFECTTHEMONOPOLYSOUTPUTPLANSHOWWOULDPROTSBEAFFECTEDSUPPOSETOTALCOSTSWERETOSHIFTTOTCH11005075Q2H1100110,000HOWWOULDTHEEQUILIBRIUMCHANGEMONOPOLYANDRESOURCEALLOCATIONINCHAPTER17WESHOWEDTHATTHEPRESENCEOFMONOPOLYCANDISTORTTHEEFCIENCYPROPERTIESOFACOMPETITIVEPRICESYSTEMBECAUSEAMONOPOLYCANAFFECTMARKETPRICES,ITMAYBEINITSINTERESTTORESTRICTOUTPUTTOATTAINHIGHERPROTSTHANAREAVAILABLEATCOMPETITIVEPRICESINTHISSECTIONWEWILLOFFERASOMEWHATMORECOMPLETEANALYSISOFTHISDISTORTIONUSINGTHEEQUILIBRIUMMODELOFMONOPOLYBASISOFCOMPARISONTOEVALUATETHEALLOCATIONALEFFECTOFAMONOPOLY,WENEEDAPRECISELYDENEDBASISOFCOMPARISONAPARTICULARLYSIMPLECOMPARISONISPROVIDEDBYTHEPERFECTLYCOMPETITIVE,CONSTANTCOSTINDUSTRYINTHISCASE,ASWESHOWEDINCHAPTER14,THEINDUSTRYSLONGRUNSUPPLYCURVEWILLBEINNITELYELASTICWITHPRICEEQUALTOBOTHMARGINALANDAVERAGECOSTITISCONVENIENTTOTHINKOFAMONOPOLYASARISINGFROMTHE“CAPTURE”OFSUCHACOMPETITIVEINDUSTRYANDTOTREATTHEINDIVIDUALRMSTHATCONSTITUTETHECOMPETITIVEINDUSTRYASNOWBEINGSINGLEPLANTSINTHEMONOPOLISTSEMPIREAPROTOTYPECASEWOULDBEJOHNDROCKEFELLERSPURCHASEOFMOSTOFTHEUSPETROLEUMRENERIESINTHELATENINETEENTHCENTURYANDHISDECISIONTOOPERATETHEMASPARTOFTHESTANDARDOILTRUSTWECANTHENCOMPARETHEPERFORMANCEOFTHISMONOPOLYTOTHEPERFORMANCEOFTHEPREVIOUSLYCOMPETITIVEINDUSTRYTOARRIVEATASTATEMENTABOUTTHEWELFARECONSEQUENCESOFMONOPOLY3H500721H50073PH11002MCH5007P75H5007500PH5007QH11128QH5007H11128P502PARTVIMODELSOFIMPERFECTCOMPETITIONAGRAPHICALANALYSISFIGURE183SHOWSASIMPLELINEARDEMANDCURVEFORAPRODUCTPRODUCEDBYACONSTANTCOSTINDUSTRY4IFTHISMARKETWERECOMPETITIVE,OUTPUTWOULDBEQTHATIS,PRODUCTIONWOULDOCCURWHEREPRICEISEQUALTOLONGRUNAVERAGEANDMARGINALCOSTUNDERASIMPLESINGLEPRICEMONOPOLY,OUTPUTWOULDBEQ,BECAUSETHISISTHELEVELOFPRODUCTIONFORWHICHMARGINALREVENUEISEQUALTOMARGINALCOSTTHERESTRICTIONINOUTPUTFROMQTOQREPRESENTSTHEMISALLOCATIONBROUGHTABOUTTHROUGHMONOPOLIZATIONTHISISTHERESULTWESHOWEDPREVIOUSLYINFIGURE174THETOTALVALUEOFRESOURCESRELEASEDBYTHISOUTPUTRESTRICTIONISSHOWNINFIGURE183ASAREAAEQQESSENTIALLY,THEMONOPOLYCLOSESDOWNSOMEOFTHEPLANTSTHATOPERATEDINTHECOMPETITIVECASEASWEDISCUSSEDPREVIOUSLY,TRANSFERRINGTHESEINPUTSELSEWHEREWILLCAUSETHESEOTHERGOODSTOBEOVERPRODUCEDRELATIVETOTHEIRPARETOEFCIENTLEVELSCHAPTER18MODELSOFMONOPOLY5034HEREWEUSETHEUSUALMARSHALLIANDEMANDCURVEONTHEPRESUMPTIONTHATINCOMEEFFECTSARERELATIVELYUNIMPORTANTFORTHEMARKETWEAREANALYZINGIFINCOMEEFFECTSWERESIGNICANT,OURANALYSISWOULDBEMORENEARLYCORRECTIFWEUSEDANINCOMECOMPENSATEDDEMANDCURVEINSTEADALLOCATIONALANDDISTRIBUTIONALEFFECTSOFMONOPOLYMONOPOLIZATIONOFTHISPREVIOUSLYCOMPETITIVEMARKETWOULDCAUSEOUTPUTTOBEREDUCEDFROMQTOQCONSUMEREXPENDITURESANDPRODUCTIVEINPUTSWORTHAEQQAREREALLOCATEDTOTHEPRODUCTIONOFOTHERGOODSCONSUMERSURPLUSEQUALTOPBAPISTRANSFERREDINTOMONOPOLYPROTSTHEREISADEADWEIGHTLOSSGIVENBYBEAPRICEQQUANTITYPERPERIODBATRANSFERFROMCONSUMERSTOFIRMDEADWEIGHTLOSSVALUEOFTRANSFERREDINPUTSQPPEDDMCH11005ACMRFIGURE183THERESTRICTIONINOUTPUTFROMQTOQINVOLVESATOTALLOSSINCONSUMERSURPLUSOFPBEPPARTOFTHISLOSSISCAPTUREDBYTHEMONOPOLYASPROTSTHESEPROTSAREMEASUREDBYPBAP,ANDTHEYREECTATRANSFEROFINCOMEFROMCONSUMERSTOTHERMWHETHERSUCHATRANSFERISREGARDEDASDESIRABLEDEPENDSONPREVAILINGSOCIETALNORMSABOUTWHETHERCONSUMERSORTHEMONOPOLYAREMOREDESERVINGOFSUCHGAINSASFORANYTRANSFER,DIFCULTISSUESOFEQUITYARISEINATTEMPTINGTOASSESSSOCIALDESIRABILITYTHEREISNOAMBIGUITYABOUTTHELOSSINCONSUMERSSURPLUSGIVENBYAREABEA,HOWEVER,BECAUSETHISLOSSISNOTTRANSFERREDTOANYONEITISAPURE“DEADWEIGHT”LOSSANDREPRESENTSTHEPRINCIPALMEASUREOFTHEALLOCATIONALHARMOFTHEMONOPOLY5TOILLUSTRATETHENATUREOFTHISDEADWEIGH