平狄克微观经济学十课件MarketPowerMonopolyandMonopsony

Chapter

10Market

Power:Monopoly

andMonopsonyChapter

11Topics

to

be

DiscussedChapter

12MonopolyMonopoly

PowerSources

of

Monopoly

PowerThe

Social

Costs

of

Monopoly

PowerTopics

to

be

DiscussedChapter

13MonopsonyMonopsony

PowerLimiting

Market

Power:

The

AntitrustLawsPerfect

CompetitionChapter

14Review

of

Perfect

CompetitionP

=

LMC

=

LRACNormal

profits

or

zero

economic

profits

inthe

long

runLarge

number

of

buyers

and

sellersHomogenous

productPerfect

informationFirm

isa

price

takerPerfect

CompetitionQQPPMarketIndividual

FirmDSQ0P0P0D

=

MR

=

Pq0LRACLMCChapter

15MonopolyChapter

16MonopolyOne

seller

-

many

buyersOne

product

(no

good

substitutes)Barriers

to

entryMonopolyChapter

17The

monopolist

isthe

supply-side

of

themarket

and

has

complete

control

over

theamount

offered

for

sale.Profits

will

be

maximized

at

the

level

ofoutput

where

marginal

revenue

equalsmarginal

cost.MonopolyChapter

18Finding

Marginal

RevenueAs

the

sole

producer,

the

monopolist

workswith

the

market

demand

to

determineoutput

and

price.Assume

a

firm

with

demand:P

=

6

-

QTotal,

Marginal,

and

Average

Revenue--Total

MarginalPrice

Quantity

RevenueAverageRevenueRevenue$

P60

Q$R0-MR--AR-515$5$54283433913248-12155-31Chapter

19Average

and

Marginal

RevenueOutput0132$

per

unit

of

output12345674657AverageRevenue(Demand)MarginalRevenueChapter

110MonopolyChapter

111ObservationsTo

increase

sales

the

price

must

fallMR

<

PCompared

to

perfect

competition◆No

change

in

price

to

change

salesMR

=

PMonopolyMonopolist’s

Output

Decision

Profits

maximized

at

the

output

levelwhere

MR

=

MCCost

functions

are

the

sameChapter

112Maximizing

Profit

When

MarginalRevenue

Equals

Marginal

CostThe

Monopolist’s

Output

DecisionAt

output

levels

below

MR

=

MC

thedecrease

in

revenue

is

greater

than

thedecrease

in

cost

(MR

>

MC).At

output

levels

above

MR

=

MC

theincrease

in

cost

is

greater

than

thedecrease

in

revenue

(MR

<

MC)Chapter

113LostprofitQ1MCACQuantity$

per

unit

of

outputD

=

ARMRP1P*Q*Maximizing

Profit

When

MarginalRevenue

Equals

Marginal

CostP2LostprofitChapter

114Q2MonopolyThe

Monopolist’s

Output

DecisionAn

ExampleChapter

115MonopolyThe

Monopolist’s

Output

DecisionAn

ExampleChapter

116MonopolyThe

Monopolist’s

Output

DecisionAn

ExampleChapter

117MonopolyThe

Monopolist’s

Output

DecisionAn

ExampleBy

setting

marginal

revenue

equal

tomarginal

cost,

it

can

be

verified

that

profitmaximized

at

P

=

$30

and

Q

=

10.This

can

be

seen

graphically:Chapter

118Quantity$010152010015020030040050RProfitstt"c5c’Example

of

Profit

MaximizationCChapter

119Example

of

Profit

MaximizationObservationsSlope

of

rr’

=

slopecc’

and

they

areparallel

at

10

unitsProfits

are

maximized

at10

unitsP

=

$30,

Q

=

10,TR

=

P

x

Q

=

$300AC

=

$15,

Q

=

10,TC

=

AC

x

Q

=

150Profit

=

TR

-

TC◆$150

=

$300

-$1505

10

1520Quantity300$400200150100500RCProfitstChapter

120t"

c

cProfitARMRMCACExample

of

Profit

MaximizationQuantity$/Q05101520102030401521Chapter

1Example

of

Profit

MaximizationObservationsAC

=

$15,

Q

=

10,TC

=

AC

x

Q

=

150Profit

=

TR

=

TC

=

$300-

$150=$150

orProfit

=

(P

-

AC)

x

Q

=($30

-

$15)(10)

=

$150$/Q05101520Quantity1020304015MCARMRACChapter

122ProfitMonopolyChapter

123A

Rule

of

Thumb

for

PricingWe

want

to

translate

the

condition

thatmarginal

revenue

should

equal

marginalcost

into

a

rule

of

thumb

that

can

be

moreeasily

applied

in

practice.Thiscan

be

demonstrated

using

thefollowing

steps:A

Rule

of

Thumb

for

PricingChapter

124A

Rule

of

Thumb

for

PricingChapter

125A

Rule

of

Thumb

for

PricingChapter

126=

the

markup

over

MC

as

apercentage

of

price

(P-MC)/PA

Rule

of

Thumb

for

PricingChapter

1278.

The

markup

should

equal

theinverseof

the

elasticity

of

demand.A

Rule

of

Thumb

for

PricingChapter

128MonopolyChapter

129Monopoly

pricing

compared

to

perfectcompetition

pricing:MonopolyP

>

MCPerfect

CompetitionP

=

MCMonopolyChapter

130Monopoly

pricing

compared

to

perfectcompetition

pricing:The

more

elastic

the

demand

the

closerprice

is

to

marginal

cost.If

Ed

is

a

large

negative

number,

price

isclose

to

marginal

cost

and

vice

versa.Astra-Merck

Prices

PrilosecThe

Monopolist’s

Output

Decision1995Price

of

Prilosec

=

$3.50/daily

dosePrice

of

Tagamet

andZantac=$1.50

-

$2.25/daily

doseMC

of

Prolosec

=

30

-

40

cents/daily

doseChapter

131Astra-Merck

Prices

PrilosecThe

Monopolist’s

Output

DecisionPrice

of

$3.50

is

consistent

with“the

rule

of

thumb

pricing”Chapter

132MonopolyChapter

133Shifts

in

DemandIn

perfect

competition,

the

market

supplycurve

isdetermined

by

marginal

cost.For

a

monopoly,

output

is

determined

bymarginal

cost

and

the

shape

of

the

demandcurve.D2D1MR2MR1Shift

in

Demand

Leads

to

Change

in

Price

but

Same

OutputQuantityMCChapter

134$/QP2P1Q1=

Q2Shift

in

Demand

Leads

to

Change

in

Output

but

Same

PriceMC$/QMR2D1MR1D2P1

=

P2Q1Q2Chapter

135QuantityMonopolyChapter

136ObservationsShifts

in

demand

usually

cause

a

change

inboth

price

and

quantity.A

monopolistic

market

has

no

supplycurve.MonopolyChapter

137ObservationsMonopolist

may

supply

many

differentquantities

at

the

same

price.Monopolist

may

supply

the

same

quantityat

different

prices.MonopolyChapter

138The

Effect

of

a

TaxUnder

monopoly

price

can

sometimes

riseby

more

than

the

amount

of

the

tax.To

determine

the

impact

of

a

tax:t

=

specific

taxMC

=

MC

+

tMR

=

MC

+

t

:

optimal

production

decisionEffect

of

Excise

Tax

on

Monopolist$/QP0MC

+

taxtD

=

ARMCMRQ1Q0QuantityP1Increase

in

P:

P0P1

>

increase

in

taxChapter

139QuestionSuppose:

Ed

=

-2How

much

would

the

price

change?Chapter

140Effect

of

Excise

Tax

on

MonopolistAnswerWhat

would

happen

to

profits?Effect

of

Excise

Tax

on

MonopolistChapter

141MonopolyChapter

142The

Multiplant

FirmFor

many

firms,

production

takes

place

intwo

or

more

different

plants

whoseoperating

cost

can

differ.MonopolyChapter

143The

Multiplant

FirmChoosing

total

output

and

the

output

foreach

plant:The

marginal

cost

in

each

plantshould

be

equal.The

marginal

cost

should

equal

themarginal

revenue

for

each

plant.MonopolyThe

Multiplant

FirmAlgebraically:Chapter

144MonopolyThe

Multiplant

FirmAlgebraically:Chapter

145MonopolyThe

Multiplant

FirmAlgebraically:Chapter

146MonopolyAlgebraically:Chapter

147Production

with

Two

PlantsQuantity$/QD

=

ARMRMC1

MC2MCTMR*Q1Q2Q3P*Chapter

148Production

with

Two

PlantsObservations:1)2)MCT

=

MC1

+

MC2Profit

maximizingoutput:◆MCT

=

MR

atQT

and

P

*◆MR

=

MR*◆MR*

=

MC1

atQ1,

MC*

=

MC2

at

Q2◆MC1

+

MC2

=MCT,

Q1

+

Q2

=

QT,and

MR

=

MC1

+

MC2Quantity$/QD

=

ARMRChapter

149MC1

MC2MCTMR*Q1Q2

Q3P*Monopoly

PowerChapter

150Monopoly

is

rare.However,

a

market

with

several

firms,each

facing

a

downward

sloping

demandcurve

will

produce

so

that

price

exceedsmarginal

cost.Monopoly

PowerChapter

151Scenario:Four

firms

with

equal

share

(5,000)

of

amarket

for20,000toothbrushes

at

a

priceof

$1.50.Quantity10,000QA$/Q2.001.501.0020,00030,0003,0005,0007,000$/Q0000504060At

a

market

priceof

$1.50,

elasticity

ofdemand

is

-1.5.2.1.1.1.1.MarketDemandThe

Demand

for

ToothbrushesThe

demand

curve

for

Firm

Adepends

on

how

muchtheir

product

differs,

andhow

the

firms

compete.Chapter

152Quantity10,000QA$/Q2.001.501.0020,00030,0003,0005,0007,000$/Q0000504060DAMRAAt

a

market

priceof

$1.50,

elasticity

ofdemand

is

-1.5.2.1.1.1.1.MarketDemandFirm

A

sees

a

much

moreelastic

demand

curve

due

tocompetition--Ed

=

-.6.

StillFirm

A

has

some

monopolypower

and

charges

a

pricewhich

exceeds

MC.MCAThe

Demand

for

ToothbrushesChapter

153Monopoly

PowerChapter

154Measuring

Monopoly

PowerIn

perfect

competition:

P

=

MR

=

MC

Monopoly

power:

P

>

MCMonopoly

PowerChapter

155Lerner’s

Index

of

Monopoly

PowerL

=

(P

-

MC)/PThe

larger

the

value

of

L

(between0

and

1)

the

greater

the

monopolypower.L

is

expressedin

terms

of

EdL

=

(P

-

MC)/P

=

-1/EdEd

is

elasticity

of

demand

for

afirm,notthe

marketMonopoly

PowerChapter

156Monopoly

power

does

not

guaranteeprofits.Profit

depends

on

average

cost

relativeto

price.Question:Can

you

identify

any

difficulties

in

using

thLerner

Index

(L)

for

public

policy?Monopoly

PowerThe

Rule

of

Thumb

for

PricingPricing

for

any

firm

with

monopoly

power◆If

EdIf

Edis

large,

markup

is