最新版微观经济学课件英文版princ-ch15-presentation

MonopolyEconomicsPRINCIPLESOFN.GregoryMankiwPremiumPowerPointSlides

byRonCronovich15MonopolyEconomicsPRINCIPInthischapter,

lookfortheanswerstothesequestions:Whydomonopoliesarise?WhyisMR<Pforamonopolist?HowdomonopolieschoosetheirPandQ?Howdomonopoliesaffectsociety’swell-being?Whatcanthegovernmentdoaboutmonopolies?Whatispricediscrimination?11MONOPOLYInthischapter,

lookfortheIntroductionAmonopolyisafirmthatisthesolesellerofaproductwithoutclosesubstitutes.Inthischapter,westudymonopolyandcontrastitwithperfectcompetition.Thekeydifference:

Amonopolyfirmhasmarketpower,theabilitytoinfluencethemarketpriceoftheproductitsells.Acompetitivefirmhasnomarketpower.2MONOPOLYIntroductionAmonopolyisafiWhyMonopoliesAriseThemaincauseofmonopoliesisbarriers

toentry–otherfirmscannotenterthemarket.Threesourcesofbarrierstoentry:1. Asinglefirmownsakeyresource.

E.g.,DeBeersownsmostoftheworld’s

diamondmines2. Thegovtgivesasinglefirmtheexclusiverighttoproducethegood.

E.g.,patents,copyrightlaws3MONOPOLYWhyMonopoliesAriseThemaincWhyMonopoliesArise3. Naturalmonopoly:asinglefirmcanproducetheentiremarketQatlowercostthancouldseveralfirms.QCostATC1000$50Example:1000homesneedelectricityElectricityATCslopesdownwardduetohugeFCandsmallMCATCislowerif

onefirmservices

all1000homes

thaniftwofirms

eachservice

500homes.500$804MONOPOLYWhyMonopoliesArise3. NaturalMonopolyvs.Competition:DemandCurvesInacompetitivemarket,themarketdemandcurveslopesdownward.Butthedemandcurve

foranyindividualfirm’sproductishorizontal

atthemarketprice.ThefirmcanincreaseQwithoutloweringP,soMR=Pforthecompetitivefirm.DPQAcompetitivefirm’sdemandcurve5MONOPOLYMonopolyvs.Competition:DemMonopolyvs.Competition:DemandCurvesAmonopolististheonlyseller,soitfacesthemarketdemandcurve.TosellalargerQ,

thefirmmustreduceP.Thus,MR≠P.DPQAmonopolist’sdemandcurve6MONOPOLYMonopolyvs.Competition:DemACTIVELEARNING1

Amonopoly’srevenue7QPTRARMR0$4.5014.0023.5033.0042.5052.0061.50n.a.CommonGrounds

istheonlysellerofcappuccinosintown.Thetableshowsthemarketdemandforcappuccinos.Fillinthemissingspacesofthetable.WhatistherelationbetweenPandAR?BetweenPandMR?7MONOPOLYACTIVELEARNINGACTIVELEARNING1

Answers8Here,P=AR,

sameasforacompetitivefirm.Here,MR<P,whereasMR=P

foracompetitivefirm.1.5062.0052.5043.0033.5021.502.002.503.003.50$4.004.001n.a.91010974$0$4.500MRARTRPQ–10123$48MONOPOLYACTIVELEARNINGCommonGrounds’DandMRCurves-3-2-101234501234567QP,MRMR$Demandcurve

(P)1.5062.0052.5043.0033.5024.001$4.500MRPQ–10123$49MONOPOLYCommonGrounds’DandMRCurUnderstandingtheMonopolist’sMRIncreasingQhastwoeffectsonrevenue:Outputeffect:higheroutputraisesrevenuePriceeffect:lowerpricereducesrevenueTosellalargerQ,themonopolistmustreducethepriceonalltheunitsitsells.Hence,MR<PMRcouldevenbenegativeifthepriceeffectexceedstheoutputeffect(e.g.,whenCommonGroundsincreasesQfrom5to6).10MONOPOLYUnderstandingtheMonopolist’sProfit-MaximizationLikeacompetitivefirm,amonopolistmaximizesprofitbyproducingthequantitywhereMR=MC.Oncethemonopolistidentifiesthisquantity,

itsetsthehighestpriceconsumersarewillingtopayforthatquantity.ItfindsthispricefromtheDcurve.11MONOPOLYProfit-MaximizationLikeacompProfit-Maximization1. Theprofit-maximizingQ

iswhere

MR=MC.2. FindPfrom

thedemandcurveatthisQ.QuantityCostsandRevenueMRDMCProfit-maximizingoutputPQ12MONOPOLYProfit-Maximization1. TheprofTheMonopolist’sProfitAswithacompetitivefirm,

themonopolist’s

profitequals(P–ATC)xQQuantityCostsandRevenueATCDMRMCQPATC13MONOPOLYTheMonopolist’sProfitAswithAMonopolyDoesNotHaveanSCurveAcompetitivefirmtakesPasgivenhasasupplycurvethatshowshowitsQdependsonP.Amonopolyfirmisa“price-maker,”nota“price-taker”QdoesnotdependonP;

rather,QandParejointlydeterminedby

MC,MR,andthedemandcurve.Sothereisnosupplycurveformonopoly.14MONOPOLYAMonopolyDoesNotHaveanSCASESTUDY:Monopolyvs.GenericDrugsPatentsonnewdrugsgiveatemporarymonopolytotheseller.Whenthe

patentexpires,

themarket

becomescompetitive,

genericsappear.MCQuantityPriceDMRPMQMPC=QCThemarketfor

atypicaldrug15MONOPOLYCASESTUDY:Monopolyvs.GeneTheWelfareCostofMonopolyRecall:Inacompetitivemarketequilibrium,

P=MCandtotalsurplusismaximized.Inthemonopolyeq’m,P>MR=MCThevaluetobuyersofanadditionalunit(P)

exceedsthecostoftheresourcesneededtoproducethatunit(MC).ThemonopolyQistoolow–

couldincreasetotalsurpluswithalargerQ.Thus,monopolyresultsinadeadweightloss.16MONOPOLYTheWelfareCostofMonopolyReP=MCDeadweight

lossPMCTheWelfareCostofMonopolyCompetitiveeq’m:quantity=QCP=MCtotalsurplusismaximizedMonopolyeq’m:quantity=QMP>MCdeadweightlossQuantityPriceDMRMCQMQC17MONOPOLYP=MCDeadweight

lossPMCTheWPriceDiscriminationDiscrimination:treatingpeopledifferentlybasedonsomecharacteristic,e.g.raceorgender.Pricediscrimination:sellingthesamegood

atdifferentpricestodifferentbuyers.Thecharacteristicusedinpricediscrimination

iswillingnesstopay(WTP):AfirmcanincreaseprofitbychargingahigherpricetobuyerswithhigherWTP.18MONOPOLYPriceDiscriminationDiscriminaConsumersurplusDeadweight

lossMonopolyprofitPerfectPriceDiscriminationvs.

SinglePriceMonopolyHere,themonopolistchargesthesameprice(PM)toallbuyers.Adeadweightlossresults.MCQuantityPriceDMRPMQM19MONOPOLYConsumersurplusDeadweight

loMonopolyprofitPerfectPriceDiscriminationvs.

SinglePriceMonopolyHere,themonopolistproducesthecompetitivequantity,butchargeseachbuyerhisorherWTP.Thisiscalledperfectpricediscrimination.ThemonopolistcapturesallCS

asprofit.Butthere’snoDWL.MCQuantityPriceDMRQ20MONOPOLYMonopolyprofitPerfectPriceDPriceDiscriminationintheRealWorldIntherealworld,perfectpricediscriminationisnotpossible:Nofirmknowseverybuyer’sWTPBuyersdonotannounceittosellersSo,firmsdividecustomersintogroups

basedonsomeobservabletrait

thatislikelyrelatedtoWTP,suchasage.21MONOPOLYPriceDiscriminationintheReExamplesofPriceDiscriminationMovietickets

Discountsforseniors,students,andpeople

whocanattendduringweekdayafternoons.

TheyareallmorelikelytohavelowerWTP

thanpeoplewhopayfullpriceonFridaynight.Airlineprices

DiscountsforSaturday-nightstayovershelpdistinguishbusinesstravelers,whousuallyhavehigherWTP,frommoreprice-sensitiveleisuretravelers.22MONOPOLYExamplesofPriceDiscriminatiExamplesofPriceDiscriminationDiscountcoupons

PeoplewhohavetimetoclipandorganizecouponsaremorelikelytohavelowerincomeandlowerWTPthanothers.Need-basedfinancialaid

LowincomefamilieshavelowerWTPfor

theirchildren’scollegeeducation.

Schoolsprice-discriminatebyoffering

need-basedaidtolowincomefamilies.23MONOPOLYExamplesofPriceDiscriminatiExamplesofPriceDiscriminationQuantitydiscounts

Abuyer’sWTPoftendeclineswithadditionalunits,sofirmschargelessperunitforlargequantitiesthansmallones. Example:Amovietheatercharges$4for

asmallpopcornand$5foralargeonethat’stwiceasbig.24MONOPOLYExamplesofPriceDiscriminatiPublicPolicyTowardMonopoliesIncreasingcompetitionwithantitrustlawsBansomeanticompetitivepractices,

allowgovttobreakupmonopolies.E.g.,ShermanAntitrustAct(1890),

ClaytonAct(1914)RegulationGovtagenciessetthemonopolist’sprice.Fornaturalmonopolies,MC<ATCatallQ,

somarginalcostpricingwouldresultinlosses.Ifso,regulatorsmightsubsidizethemonopolistorsetP=ATCforzeroeconomicprofit.25MONOPOLYPublicPolicyTowardMonopoliePublicPolicyTowardMonopoliesPublicownershipExample:U.S.PostalServiceProblem:PublicownershipisusuallylessefficientsincenoprofitmotivetominimizecostsDoingnothingTheforegoingpoliciesallhavedrawbacks,

sothebestpolicymaybenopolicy.26MONOPOLYPublicPolicyTowardMonopolieCONCLUSION:ThePrevalenceofMonopolyIntherealworld,puremonopolyisrare.Yet,manyfirmshavemarketpower,dueto:sellingauniquevarietyofaproducthavingalargemarketshareandfewsignificantcompetitorsInmanysuchcases,mostoftheresultsfromthischapterapply,including:markupofpriceovermarginalcostdeadweightloss27MONOPOLYCONCLUSION:ThePrevalenceofCHAPTERSUMMARYAmonopolyfirmisthesolesellerinitsmarket.Monopoliesariseduetobarrierstoentry,including:government-grantedmonopolies,thecontrolofakeyresource,oreconomiesofscaleovertheentirerangeofoutput.Amonopolyfirmfacesadownward-slopingdemandcurveforitsproduct.Asaresult,itmustreducepricetosellalargerquantity,whichcausesmarginalrevenuetofallbelowprice.2828MONOPOLYCHAPTERSUMMARYAmonopolyfirmCHAPTERSUMMARYMonopolyfirmsmaximizeprofitsbyproducingthequantitywheremarginalrevenueequalsmarginalcost.Butsincemarginalrevenueislessthanprice,themonopolypricewillbegreaterthanmarginalcost,leadingtoadeadweightloss.Monopolyfirms(andotherswithmarketpower)

trytoraisetheirprofitsbycharginghigherprices

toconsumerswithhigherwillingnesstopay.

Thispracticeiscalledpricediscrimination.2929MONOPOLYCHAPTERSUMMARYMonopolyfirmsCHAPTERSUMMARYPolicymakersmayrespondbyregulatingmonopolies,usingantitrustlawstopromotecompetition,orbytakingoverthemonopolyandrunningit.Duetoproblemswitheachoftheseoptions,thebestoptionmaybetotakenoaction.3030MONOPOLYCHAPTERSUMMARYPolicymakersmaProblemsandApplications:2.Supposethatanaturalmonopolistwasrequiredbylawtochargeaveragetotalcost.Onadiagram,labelthepricechargedandthedeadweightlosstosocietyrelativetomarginal-costpricing.3131MONOPOLYProblemsandApplications:3131MonopolyEconomicsPRINCIPLESOFN.GregoryMankiwPremiumPowerPointSlides

byRonCronovich15MonopolyEconomicsPRINCIPInthischapter,

lookfortheanswerstothesequestions:Whydomonopoliesarise?WhyisMR<Pforamonopolist?HowdomonopolieschoosetheirPandQ?Howdomonopoliesaffectsociety’swell-being?Whatcanthegovernmentdoaboutmonopolies?Whatispricediscrimination?3333MONOPOLYInthischapter,

lookfortheIntroductionAmonopolyisafirmthatisthesolesellerofaproductwithoutclosesubstitutes.Inthischapter,westudymonopolyandcontrastitwithperfectcompetition.Thekeydifference:

Amonopolyfirmhasmarketpower,theabilitytoinfluencethemarketpriceoftheproductitsells.Acompetitivefirmhasnomarketpower.34MONOPOLYIntroductionAmonopolyisafiWhyMonopoliesAriseThemaincauseofmonopoliesisbarriers

toentry–otherfirmscannotenterthemarket.Threesourcesofbarrierstoentry:1. Asinglefirmownsakeyresource.

E.g.,DeBeersownsmostoftheworld’s

diamondmines2. Thegovtgivesasinglefirmtheexclusiverighttoproducethegood.

E.g.,patents,copyrightlaws35MONOPOLYWhyMonopoliesAriseThemaincWhyMonopoliesArise3. Naturalmonopoly:asinglefirmcanproducetheentiremarketQatlowercostthancouldseveralfirms.QCostATC1000$50Example:1000homesneedelectricityElectricityATCslopesdownwardduetohugeFCandsmallMCATCislowerif

onefirmservices

all1000homes

thaniftwofirms

eachservice

500homes.500$8036MONOPOLYWhyMonopoliesArise3. NaturalMonopolyvs.Competition:DemandCurvesInacompetitivemarket,themarketdemandcurveslopesdownward.Butthedemandcurve

foranyindividualfirm’sproductishorizontal

atthemarketprice.ThefirmcanincreaseQwithoutloweringP,soMR=Pforthecompetitivefirm.DPQAcompetitivefirm’sdemandcurve37MONOPOLYMonopolyvs.Competition:DemMonopolyvs.Competition:DemandCurvesAmonopolististheonlyseller,soitfacesthemarketdemandcurve.TosellalargerQ,

thefirmmustreduceP.Thus,MR≠P.DPQAmonopolist’sdemandcurve38MONOPOLYMonopolyvs.Competition:DemACTIVELEARNING1

Amonopoly’srevenue39QPTRARMR0$4.5014.0023.5033.0042.5052.0061.50n.a.CommonGrounds

istheonlysellerofcappuccinosintown.Thetableshowsthemarketdemandforcappuccinos.Fillinthemissingspacesofthetable.WhatistherelationbetweenPandAR?BetweenPandMR?39MONOPOLYACTIVELEARNINGACTIVELEARNING1

Answers40Here,P=AR,

sameasforacompetitivefirm.Here,MR<P,whereasMR=P

foracompetitivefirm.1.5062.0052.5043.0033.5021.502.002.503.003.50$4.004.001n.a.91010974$0$4.500MRARTRPQ–10123$440MONOPOLYACTIVELEARNINGCommonGrounds’DandMRCurves-3-2-101234501234567QP,MRMR$Demandcurve

(P)1.5062.0052.5043.0033.5024.001$4.500MRPQ–10123$441MONOPOLYCommonGrounds’DandMRCurUnderstandingtheMonopolist’sMRIncreasingQhastwoeffectsonrevenue:Outputeffect:higheroutputraisesrevenuePriceeffect:lowerpricereducesrevenueTosellalargerQ,themonopolistmustreducethepriceonalltheunitsitsells.Hence,MR<PMRcouldevenbenegativeifthepriceeffectexceedstheoutputeffect(e.g.,whenCommonGroundsincreasesQfrom5to6).42MONOPOLYUnderstandingtheMonopolist’sProfit-MaximizationLikeacompetitivefirm,amonopolistmaximizesprofitbyproducingthequantitywhereMR=MC.Oncethemonopolistidentifiesthisquantity,

itsetsthehighestpriceconsumersarewillingtopayforthatquantity.ItfindsthispricefromtheDcurve.43MONOPOLYProfit-MaximizationLikeacompProfit-Maximization1. Theprofit-maximizingQ

iswhere

MR=MC.2. FindPfrom

thedemandcurveatthisQ.QuantityCostsandRevenueMRDMCProfit-maximizingoutputPQ44MONOPOLYProfit-Maximization1. TheprofTheMonopolist’sProfitAswithacompetitivefirm,

themonopolist’s

profitequals(P–ATC)xQQuantityCostsandRevenueATCDMRMCQPATC45MONOPOLYTheMonopolist’sProfitAswithAMonopolyDoesNotHaveanSCurveAcompetitivefirmtakesPasgivenhasasupplycurvethatshowshowitsQdependsonP.Amonopolyfirmisa“price-maker,”nota“price-taker”QdoesnotdependonP;

rather,QandParejointlydeterminedby

MC,MR,andthedemandcurve.Sothereisnosupplycurveformonopoly.46MONOPOLYAMonopolyDoesNotHaveanSCASESTUDY:Monopolyvs.GenericDrugsPatentsonnewdrugsgiveatemporarymonopolytotheseller.Whenthe

patentexpires,

themarket

becomescompetitive,

genericsappear.MCQuantityPriceDMRPMQMPC=QCThemarketfor

atypicaldrug47MONOPOLYCASESTUDY:Monopolyvs.GeneTheWelfareCostofMonopolyRecall:Inacompetitivemarketequilibrium,

P=MCandtotalsurplusismaximized.Inthemonopolyeq’m,P>MR=MCThevaluetobuyersofanadditionalunit(P)

exceedsthecostoftheresourcesneededtoproducethatunit(MC).ThemonopolyQistoolow–

couldincreasetotalsurpluswithalargerQ.Thus,monopolyresultsinadeadweightloss.48MONOPOLYTheWelfareCostofMonopolyReP=MCDeadweight

lossPMCTheWelfareCostofMonopolyCompetitiveeq’m:quantity=QCP=MCtotalsurplusismaximizedMonopolyeq’m:quantity=QMP>MCdeadweightlossQuantityPriceDMRMCQMQC49MONOPOLYP=MCDeadweight

lossPMCTheWPriceDiscriminationDiscrimination:treatingpeopledifferentlybasedonsomecharacteristic,e.g.raceorgender.Pricediscrimination:sellingthesamegood

atdifferentpricestodifferentbuyers.Thecharacteristicusedinpricediscrimination

iswillingnesstopay(WTP):AfirmcanincreaseprofitbychargingahigherpricetobuyerswithhigherWTP.50MONOPOLYPriceDiscriminationDiscriminaConsumersurplusDeadweight

lossMonopolyprofitPerfectPriceDiscriminationvs.

SinglePriceMonopolyHere,themonopolistchargesthesameprice(PM)toallbuyers.Adeadweightlossresults.MCQuantityPriceDMRPMQM51MONOPOLYConsumersurplusDeadweight

loMonopolyprofitPerfectPriceDiscriminationvs.

SinglePriceMonopolyHere,themonopolistproducesthecompetitivequantity,butchargeseachbuyerhisorherWTP.Thisiscalledperfectpricediscrimination.ThemonopolistcapturesallCS

asprofit.Butthere’snoDWL.MCQuantityPriceDMRQ52MONOPOLYMonopolyprofitPerfectPriceDPriceDiscriminationintheRealWorldIntherealworld,perfectpricediscriminationisnotpossible:Nofirmknowseverybuyer’sWTPBuyersdonotannounceittosellersSo,firmsdividecustomersintogroups

basedonsomeobservabletrait

thatislikelyrelatedtoWTP,suchasage.53MONOPOLYPriceDiscriminationintheReExamplesofPriceDiscriminationMovietickets

Discountsforseniors,students,andpeople

whocanattendduringweekdayafternoons.

TheyareallmorelikelytohavelowerWTP

thanpeoplewhopayfullpriceonFridaynight.Airlineprices

DiscountsforSaturday-nightstayovershelpdistinguishbusinesstravelers,whousuallyhavehigherWTP,frommoreprice-sensitiveleisuretravelers.54MONOPOLYExamplesofPriceDiscriminatiExamplesofPriceDiscriminationDiscountcoupons

PeoplewhohavetimetoclipandorganizecouponsaremorelikelytohavelowerincomeandlowerWTPthanothers.Need-basedfinancialaid

LowincomefamilieshavelowerWTPfor

theirchildren’scollegeeducation.

Schoolsprice-discriminatebyoffering

need-basedaidtolowincomefamilies.55MONOPOLYExamplesofPriceDiscriminatiExamplesofPriceDiscriminationQuantitydiscounts

Abuyer’sWTPoftendeclineswithadditionalunits,sofirmschargelessperunitforlargequantitiesthansmallones. Example:Amovietheatercharges$4for

asmallpopcornand$5foralargeonethat’stwiceasbig.56MONOPOLYExamplesofPriceDiscriminatiPublicPolicyTowardMonopoliesIncreasingcompetitionwithantitrustlawsBansomeanticompetitivepractices,

allowgovttobreakupmonopolies.E.g.,ShermanAntitrustAct(1890),

ClaytonAct(1914)RegulationGovtagenciessetthemonopolist’sprice.Fornaturalmonopolies,MC<ATCatallQ,

somarginalcostpricingwouldresultinlosses.Ifso,regulatorsmightsubsidizethemonopolistorsetP=ATCforzeroeconomicprofit.57MONOPOLYPublicPolicyTowardMonopoliePublicPolicy