MICROECONOMICSMICROECONOMICS

PREPARED BY: PREPARED BY:

Dr. Mohammad Zedan SalemDr. Mohammad Zedan Salem

OUTLINE OF CHAPTER 10: MARGINAL REVENUE OUTLINE OF CHAPTER 10: MARGINAL REVENUE AND MONOPOLYAND MONOPOLY

- Patterns of imperfect competition

- Marginal revenue and monopoly

PATTERNS OF IMPERFECT COMPETITIONPATTERNS OF IMPERFECT COMPETITION

- in most towns, a single company, a monopoly, generates and markets all the electricity used by the populace

- Imperfect competition does not imply that a firm has absolute control over the price of its product

- For a perfect competitor, demand is perfectly elastic; for an imperfect competitor, demand has a finite elasticity

PATTERNS OF IMPERFECT COMPETITIONPATTERNS OF IMPERFECT COMPETITION

- monopoly is a single seller with complete control over an industry. It is the only one producing in its industry, and there is no industry producing a close substitute

- In the long run, no monopolist is completely secure from attack by competitors

- Oligopoly: we have seen that oligopoly means few sellers. Neither A nor B can be called a monopolist

PATTERNS OF IMPERFECT COMPETITIONPATTERNS OF IMPERFECT COMPETITION

- fundamentally, competition among the few tends to arise when cost conditions or entry barriers prevent a large number of firms from producing the industry’s output

The barriers may arise from government laws or regulations

- A barrier to competition arises when legal restriction reduces the number of competitors below the number that would survive on the basis of efficiency or cost conditions alone

MARGINAL REVENUE AND MARGINAL REVENUE AND MONOPOLYMONOPOLY

- if the monopolist wishes to maximize its profits, what price should it charge? What output level should it produce?

To answer these questions, we need to compare the costs of production with the revenues from production

- Example

- Revenue can be maximized when the demand elasticity is exactly one

MARGINAL REVENUE AND MARGINAL REVENUE AND MONOPOLYMONOPOLY

-marginal revenue is the increment in total revenue that comes when output increases by 1 unit. MR can be either positive or negative

- Negative MR means that, in order to sell additional units, the firm must decrease its price so much that its total revenues decline

- The maximum profit price and quantity of a monopolist come where its marginal revenue equals its marginal cost

THE ENDTHE END