Bài giảng topic 6 monopoly

Monopoly Demand curve Monopolist’s demand curve is the industry demand curve and therefore is down-sloping  Monopolist is a ‘price maker’ since it can influence total supply... Profit

Topic 6

Characteristics of a pure monopoly

 Regulations, Patents and Licences

 Control of the supply of raw materials

Monopoly Demand curve

 Monopolist’s demand curve is the

industry demand curve and therefore is down-sloping

 Monopolist is a ‘price maker’ since it can influence total supply

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Demand Curve of a Monopoly Firm

Copyright 2001 Pearson Education Australia

Profit maximisation under Monopoly

Rules for Profit maximization same

as under Perfect Competition

 MR = MC (where MC cuts MR from below)

 Short Run: P ≥ AVC

 Long Run : P ≥ ATC

Profit maximising under monopoly

Profit maximising under monopoly

Copyright 2001 Pearson Education Australia

Profit maximisation under Monopoly

Profit Maximisation Loss Minimisation

Points to remember

 A monopolist will not charge the highest price possible (A monopolist seeks to maximise profit, not necessarily price)

 A monopolist will not maximize profit per units but total profits

 Monopolies are not always making profit

Losses are possible

 Pure monopoly does not guarantee economic profits

Assessment of Monopoly

Comparison with PC (with no monopolist

economies of scale)

 No economies of scale: means that the

cost curve ( MC & AC) are the same under both

PC and Monopoly

 Monopoly: higher price, lower output

 smaller consumer surplus

 no allocative efficiency

 no productive efficiency

 deadweight loss to society (area ABE)

 Monopoly: lower price, higher output

 larger consumer surplus

 more efficient as overall costs will be lower than under PC

Regulating Monopolies

 Historically, monopolies have been operated or heavily regulated by the government

 Competition policy & Legal action:

 Actions against firms overcharging price

 Incentives to new entrants

 Price ceilings

 at the point where MC cuts the D curve (allocative efficiency achieved)

More about price ceilings

More about price ceilings

- When MC is decreasing

-Two part pricing

regulation:

incur a loss PaPcEB

charge a fixed fee so

that the loss will be

recovered

Price Discrimination

Prerequisites

Degrees of price discrimination

(leaving zero consumer surplus)