monopoly_chapter 15_macroeconomics_ mankew power point slides
TRANSCRIPT
![Page 1: Monopoly_Chapter 15_Macroeconomics_ Mankew power point slides](https://reader031.vdocuments.net/reader031/viewer/2022022411/58f08f551a28ab2f4c8b4575/html5/thumbnails/1.jpg)
Chapter 15Chapter 15
MonopolyMonopoly
©© 2002 by Nelson, a division of Thomson Canada Limited 2002 by Nelson, a division of Thomson Canada Limited
![Page 2: Monopoly_Chapter 15_Macroeconomics_ Mankew power point slides](https://reader031.vdocuments.net/reader031/viewer/2022022411/58f08f551a28ab2f4c8b4575/html5/thumbnails/2.jpg)
Mankiw et al. Principles of Microeconomics, 2nd Canadian Edition Chapter 15: Page 2
• Learn why some markets have only one seller.
• Analyze how monopoly determines the quantity to produce and the price to charge.
• See how monopoly’s decisions affect economic well-being.
• Consider the various public policies aimed at solving the monopoly problem.
• See why monopolies try to charge different prices to different customers.
In this chapter you will…In this chapter you will…
![Page 3: Monopoly_Chapter 15_Macroeconomics_ Mankew power point slides](https://reader031.vdocuments.net/reader031/viewer/2022022411/58f08f551a28ab2f4c8b4575/html5/thumbnails/3.jpg)
Mankiw et al. Principles of Microeconomics, 2nd Canadian Edition Chapter 15: Page 3
• While a competitive firm is a price taker, a monopoly firm is a price maker.
• A firm is considered a monopoly monopoly if . . .– it is the sole seller of its product.– its product does not have close
substitutes.
MONOPOLYMONOPOLY
![Page 4: Monopoly_Chapter 15_Macroeconomics_ Mankew power point slides](https://reader031.vdocuments.net/reader031/viewer/2022022411/58f08f551a28ab2f4c8b4575/html5/thumbnails/4.jpg)
Mankiw et al. Principles of Microeconomics, 2nd Canadian Edition Chapter 15: Page 4
• The fundamental cause of monopoly is barriers to entry.
• Barriers to entry have three sources:– Ownership of a key resource.– The government gives a single firm the
exclusive right to produce some good.– Costs of production make a single
producer more efficient than a large number of producers.
Why Monopolies AriseWhy Monopolies Arise
![Page 5: Monopoly_Chapter 15_Macroeconomics_ Mankew power point slides](https://reader031.vdocuments.net/reader031/viewer/2022022411/58f08f551a28ab2f4c8b4575/html5/thumbnails/5.jpg)
Mankiw et al. Principles of Microeconomics, 2nd Canadian Edition Chapter 15: Page 5
• Monopoly resources– Although exclusive ownership of a key
resource is a potential source of monopoly, in practice monopolies rarely arise for this reason.
• Government created monopolies– Governments may restrict entry by giving a
single firm the exclusive right to sell a particular good in certain markets.
– Patent and copyright laws are two important examples of how government creates a monopoly to serve the public interest.
Why Monopolies AriseWhy Monopolies Arise
![Page 6: Monopoly_Chapter 15_Macroeconomics_ Mankew power point slides](https://reader031.vdocuments.net/reader031/viewer/2022022411/58f08f551a28ab2f4c8b4575/html5/thumbnails/6.jpg)
Mankiw et al. Principles of Microeconomics, 2nd Canadian Edition Chapter 15: Page 6
• Natural Monopolies– An industry is a natural monopoly when
a single firm can supply a good or service to an entire market at a smaller cost than could two or more firms.
– A natural monopoly arises when there are economies of scale over the relevant range of output.
Why Monopolies AriseWhy Monopolies Arise
![Page 7: Monopoly_Chapter 15_Macroeconomics_ Mankew power point slides](https://reader031.vdocuments.net/reader031/viewer/2022022411/58f08f551a28ab2f4c8b4575/html5/thumbnails/7.jpg)
Mankiw et al. Principles of Microeconomics, 2nd Canadian Edition Chapter 15: Page 7
Cost
Quantity of Output0
Averagetotalcost
Figure 15-1: Economies of Scale as a Cause Figure 15-1: Economies of Scale as a Cause of Monopolyof Monopoly
![Page 8: Monopoly_Chapter 15_Macroeconomics_ Mankew power point slides](https://reader031.vdocuments.net/reader031/viewer/2022022411/58f08f551a28ab2f4c8b4575/html5/thumbnails/8.jpg)
Mankiw et al. Principles of Microeconomics, 2nd Canadian Edition Chapter 15: Page 8
• Monopoly versus Competition– Monopoly
• Is the sole producer• Faces a downward-sloping demand curve• Is a price maker• Reduces price to increase sales
– Competitive Firm• Is one of many producers• Faces a horizontal demand curve• Is a price taker• Sells as much or as little at same price
Pricing and Production DecisionsPricing and Production Decisions
![Page 9: Monopoly_Chapter 15_Macroeconomics_ Mankew power point slides](https://reader031.vdocuments.net/reader031/viewer/2022022411/58f08f551a28ab2f4c8b4575/html5/thumbnails/9.jpg)
Mankiw et al. Principles of Microeconomics, 2nd Canadian Edition Chapter 15: Page 9
(a) Competitive Firm (b) MonopolyPrice
0 0
Price
Demand
Demand
Quantity of OutputQuantity of Output
Figure 15-2: Demand Curves for Competitive Figure 15-2: Demand Curves for Competitive and Monopoly Firmsand Monopoly Firms
![Page 10: Monopoly_Chapter 15_Macroeconomics_ Mankew power point slides](https://reader031.vdocuments.net/reader031/viewer/2022022411/58f08f551a28ab2f4c8b4575/html5/thumbnails/10.jpg)
Mankiw et al. Principles of Microeconomics, 2nd Canadian Edition Chapter 15: Page 10
• Total RevenueP Q = TR
• Average RevenueTR/Q = AR = P
• Marginal RevenueTR/Q = MR
A Monopoly’s RevenueA Monopoly’s Revenue
![Page 11: Monopoly_Chapter 15_Macroeconomics_ Mankew power point slides](https://reader031.vdocuments.net/reader031/viewer/2022022411/58f08f551a28ab2f4c8b4575/html5/thumbnails/11.jpg)
Mankiw et al. Principles of Microeconomics, 2nd Canadian Edition Chapter 15: Page 11
Table 15-1: A Monopoly’s Total, Average, Table 15-1: A Monopoly’s Total, Average, and Marginal Revenue.and Marginal Revenue.
- 4 32438
- 242847
053056
263065
472874
682483
891892
$ 10 $ 1010101
------$ 0$ 110
(MR = ∆TR/∆Q)(AR = P x Q)(TR = P x Q)(P)(Q)
Marginal Revenue
Average Revenue
Total RevenuePrice
Quantity of Water
![Page 12: Monopoly_Chapter 15_Macroeconomics_ Mankew power point slides](https://reader031.vdocuments.net/reader031/viewer/2022022411/58f08f551a28ab2f4c8b4575/html5/thumbnails/12.jpg)
Mankiw et al. Principles of Microeconomics, 2nd Canadian Edition Chapter 15: Page 12
• A Monopoly’s Marginal Revenue– A monopolist’s marginal revenue
is always less than the price of its good.• The demand curve is downward
sloping.• When a monopoly drops the price to
sell one more unit, the revenue received from previously sold units also decreases.
A Monopoly’s RevenueA Monopoly’s Revenue
![Page 13: Monopoly_Chapter 15_Macroeconomics_ Mankew power point slides](https://reader031.vdocuments.net/reader031/viewer/2022022411/58f08f551a28ab2f4c8b4575/html5/thumbnails/13.jpg)
Mankiw et al. Principles of Microeconomics, 2nd Canadian Edition Chapter 15: Page 13
• A Monopoly’s Marginal Revenue– When a monopoly increases the
amount it sells, it has two effects on total revenue (P Q).• The output effect—more output is
sold, so Q is higher.• The price effect—price falls, so P is
lower.
A Monopoly’s RevenueA Monopoly’s Revenue
![Page 14: Monopoly_Chapter 15_Macroeconomics_ Mankew power point slides](https://reader031.vdocuments.net/reader031/viewer/2022022411/58f08f551a28ab2f4c8b4575/html5/thumbnails/14.jpg)
Mankiw et al. Principles of Microeconomics, 2nd Canadian Edition Chapter 15: Page 14
Price
Quantity of Water
1 2 3 4 5 6 7 8
11
109876543210–1–2–3–4
Marginal revenue
Demand (average revenue)
Figure 15-3: The Demand and Marginal Figure 15-3: The Demand and Marginal Revenue Curves for a Monopoly Revenue Curves for a Monopoly
![Page 15: Monopoly_Chapter 15_Macroeconomics_ Mankew power point slides](https://reader031.vdocuments.net/reader031/viewer/2022022411/58f08f551a28ab2f4c8b4575/html5/thumbnails/15.jpg)
Mankiw et al. Principles of Microeconomics, 2nd Canadian Edition Chapter 15: Page 15
• A monopoly maximizes profit by producing the quantity at which marginal revenue equals marginal cost.
• It then uses the demand curve to find the price that will induce consumers to buy that quantity.
Profit MaximizationProfit Maximization
![Page 16: Monopoly_Chapter 15_Macroeconomics_ Mankew power point slides](https://reader031.vdocuments.net/reader031/viewer/2022022411/58f08f551a28ab2f4c8b4575/html5/thumbnails/16.jpg)
Mankiw et al. Principles of Microeconomics, 2nd Canadian Edition Chapter 15: Page 16
Costs and Revenue
Quantity0
Marginal costMarginal revenue
Demand
Average total cost
Q1 Q2
2. … and then the demand curve shows the price consistent with this quantity.
Monopoly price
B
A
1. The intersection of the MR curve and the MC curve determines the profit maximizing quantity…
QMAX
Figure 15-4: Profit Maximization for a Figure 15-4: Profit Maximization for a Monopoly Monopoly
![Page 17: Monopoly_Chapter 15_Macroeconomics_ Mankew power point slides](https://reader031.vdocuments.net/reader031/viewer/2022022411/58f08f551a28ab2f4c8b4575/html5/thumbnails/17.jpg)
Mankiw et al. Principles of Microeconomics, 2nd Canadian Edition Chapter 15: Page 17
• Comparing Monopoly and Competition – For a competitive firm, price equals
marginal cost.P = MR = MC– For a monopoly firm, price exceeds
marginal cost.P > MR = MC
Profit MaximizationProfit Maximization
![Page 18: Monopoly_Chapter 15_Macroeconomics_ Mankew power point slides](https://reader031.vdocuments.net/reader031/viewer/2022022411/58f08f551a28ab2f4c8b4575/html5/thumbnails/18.jpg)
Mankiw et al. Principles of Microeconomics, 2nd Canadian Edition Chapter 15: Page 18
• Profit equals total revenue minus total costs.– Profit = TR - TC– Profit = (TR/Q - TC/Q) Q– Profit = (P - ATC) Q
• The monopolist will receive economic profits as long as price is greater than average total cost.
A Monopoly’s ProfitA Monopoly’s Profit
![Page 19: Monopoly_Chapter 15_Macroeconomics_ Mankew power point slides](https://reader031.vdocuments.net/reader031/viewer/2022022411/58f08f551a28ab2f4c8b4575/html5/thumbnails/19.jpg)
Mankiw et al. Principles of Microeconomics, 2nd Canadian Edition Chapter 15: Page 19
Costs and Revenue
Quantity0
Monopoly price
QMAX
Monopolyprofit
Marginal cost
Marginal revenue
Demand
Average total cost
D
BE
CAverage
total cost
Figure 15-5: The Monopoly’s Profit Figure 15-5: The Monopoly’s Profit
![Page 20: Monopoly_Chapter 15_Macroeconomics_ Mankew power point slides](https://reader031.vdocuments.net/reader031/viewer/2022022411/58f08f551a28ab2f4c8b4575/html5/thumbnails/20.jpg)
Mankiw et al. Principles of Microeconomics, 2nd Canadian Edition Chapter 15: Page 20
• A new drug discovery gives rise to a patent and gives the firm a monopoly on the sale of that drug.
• When the patent expires and any company can make or sell the drug.
• The market switches from being monopolistic to being competitive.
CASE STUDY:CASE STUDY: The Market for DrugsThe Market for Drugs
![Page 21: Monopoly_Chapter 15_Macroeconomics_ Mankew power point slides](https://reader031.vdocuments.net/reader031/viewer/2022022411/58f08f551a28ab2f4c8b4575/html5/thumbnails/21.jpg)
Mankiw et al. Principles of Microeconomics, 2nd Canadian Edition Chapter 15: Page 21
Costs and Revenue
Quantity0
Marginal revenue
Demand
Price during
patent life
Marginal costPrice after patent
expires
Monopoly quantity
Competitive quantity
Figure 15-6: The Market for Drugs Figure 15-6: The Market for Drugs
![Page 22: Monopoly_Chapter 15_Macroeconomics_ Mankew power point slides](https://reader031.vdocuments.net/reader031/viewer/2022022411/58f08f551a28ab2f4c8b4575/html5/thumbnails/22.jpg)
Mankiw et al. Principles of Microeconomics, 2nd Canadian Edition Chapter 15: Page 22
• In contrast to a competitive firm, the monopoly charges a price above the marginal cost.
• From the standpoint of consumers, this high price makes monopoly undesirable.
• However, from the standpoint of the owners of the firm, the high price makes monopoly very desirable.
THE WELFARE COST OF THE WELFARE COST OF MONOPOLYMONOPOLY
![Page 23: Monopoly_Chapter 15_Macroeconomics_ Mankew power point slides](https://reader031.vdocuments.net/reader031/viewer/2022022411/58f08f551a28ab2f4c8b4575/html5/thumbnails/23.jpg)
Mankiw et al. Principles of Microeconomics, 2nd Canadian Edition Chapter 15: Page 23
Demand (Value to buyers)
Marginal cost
Quantity
Price
0 Efficient quantity
Value to buyers is greater than cost to sellers
Value to buyers is less than cost to sellers
Cost to monopolist
Value to buyers
Value to buyers
Cost to monopolist
Figure 15-7: The Efficiency Level of Output Figure 15-7: The Efficiency Level of Output
![Page 24: Monopoly_Chapter 15_Macroeconomics_ Mankew power point slides](https://reader031.vdocuments.net/reader031/viewer/2022022411/58f08f551a28ab2f4c8b4575/html5/thumbnails/24.jpg)
Mankiw et al. Principles of Microeconomics, 2nd Canadian Edition Chapter 15: Page 24
• Because a monopoly sets its price above marginal cost, it places a wedge between the consumer’s willingness to pay and the producer’s cost.– This wedge causes the quantity sold to
fall short of the social optimum.• The Inefficiency of Monopoly
– The monopolist produces less than the socially efficient quantity of output.
– The “economic pie” shrinks.
Deadweight LossDeadweight Loss
![Page 25: Monopoly_Chapter 15_Macroeconomics_ Mankew power point slides](https://reader031.vdocuments.net/reader031/viewer/2022022411/58f08f551a28ab2f4c8b4575/html5/thumbnails/25.jpg)
Mankiw et al. Principles of Microeconomics, 2nd Canadian Edition Chapter 15: Page 25
Price
Quantity0
Marginal revenue
Demand
Marginal cost
Monopoly price
Monopoly quantity
Efficiency quantity
Deadweightloss
Figure 15-8: The Inefficiency of Monopoly Figure 15-8: The Inefficiency of Monopoly
![Page 26: Monopoly_Chapter 15_Macroeconomics_ Mankew power point slides](https://reader031.vdocuments.net/reader031/viewer/2022022411/58f08f551a28ab2f4c8b4575/html5/thumbnails/26.jpg)
Mankiw et al. Principles of Microeconomics, 2nd Canadian Edition Chapter 15: Page 26
• The deadweight loss caused by a monopoly is similar to the deadweight loss caused by a tax.
• The difference between the two cases is that the government gets the revenue from a tax, whereas a private firm gets the monopoly profit.
Deadweight LossDeadweight Loss
![Page 27: Monopoly_Chapter 15_Macroeconomics_ Mankew power point slides](https://reader031.vdocuments.net/reader031/viewer/2022022411/58f08f551a28ab2f4c8b4575/html5/thumbnails/27.jpg)
Mankiw et al. Principles of Microeconomics, 2nd Canadian Edition Chapter 15: Page 27
• Government responds to the problem of monopoly in one of four ways.– Making monopolized industries
more competitive.– Regulating the behaviour of
monopolies.– Turning some private monopolies
into public enterprises.– Doing nothing at all.
PUBLIC POLICY TOWARD PUBLIC POLICY TOWARD MONOPOLIESMONOPOLIES
![Page 28: Monopoly_Chapter 15_Macroeconomics_ Mankew power point slides](https://reader031.vdocuments.net/reader031/viewer/2022022411/58f08f551a28ab2f4c8b4575/html5/thumbnails/28.jpg)
Mankiw et al. Principles of Microeconomics, 2nd Canadian Edition Chapter 15: Page 28
• Legislation designed to encourage competition and discourage the use of monopoly practices can curb the inefficiencies resulting from market power in general and monopoly in particular.
• Competition law has a long history in Canada:– 1889: The Act for the Prevention and
Suppression of Combinations Formed in Restraint of Trade.
– 1910: Combines Investigation Act– 1986: Competition Act and the Competition
Tribunal Act
Competition LawCompetition Law
![Page 29: Monopoly_Chapter 15_Macroeconomics_ Mankew power point slides](https://reader031.vdocuments.net/reader031/viewer/2022022411/58f08f551a28ab2f4c8b4575/html5/thumbnails/29.jpg)
Mankiw et al. Principles of Microeconomics, 2nd Canadian Edition Chapter 15: Page 29
• The Competition Act:• “… maintain and encourage competition in
Canada in order to promote the efficiency and adaptability of the Canadian economy… …. and in order to provide consumers with competitive prices and product choices.”
• Competition law in Canada is enforced by the Commissioner of Competition of the Competition Bureau, a unit within the Federal government’s Industry Canada.
Competition LawCompetition Law
![Page 30: Monopoly_Chapter 15_Macroeconomics_ Mankew power point slides](https://reader031.vdocuments.net/reader031/viewer/2022022411/58f08f551a28ab2f4c8b4575/html5/thumbnails/30.jpg)
Mankiw et al. Principles of Microeconomics, 2nd Canadian Edition Chapter 15: Page 30
• Competition laws have costs and benefits.– Sometimes companies merge not to
reduce competition but to lower costs through joint production.
– The benefits of greater efficiencies through mergers are called synergies.
• If the competition laws are to raise social welfare, the government must determine which mergers are desirable and which are not.
Competition LawCompetition Law
![Page 31: Monopoly_Chapter 15_Macroeconomics_ Mankew power point slides](https://reader031.vdocuments.net/reader031/viewer/2022022411/58f08f551a28ab2f4c8b4575/html5/thumbnails/31.jpg)
Mankiw et al. Principles of Microeconomics, 2nd Canadian Edition Chapter 15: Page 31
• Government may regulate the prices that the monopoly charges. This is often the case with natural monopolies where governments regulate the price. – The allocation of resources will be
efficient and total surplus maximized if price is set to equal marginal cost.
RegulationRegulation
![Page 32: Monopoly_Chapter 15_Macroeconomics_ Mankew power point slides](https://reader031.vdocuments.net/reader031/viewer/2022022411/58f08f551a28ab2f4c8b4575/html5/thumbnails/32.jpg)
Mankiw et al. Principles of Microeconomics, 2nd Canadian Edition Chapter 15: Page 32
• Two practical problems associated with marginal-cost pricing.1. Natural monopolies often have declining
average total cost. (See Figure 15-9)– The price is less than ATC thus creating
losses.2. No incentive for monopolist to reduce costs.
– Reducing costs will reduce prices.– In practice, regulators will allow
monopolists to keep some of the benefits from lower costs in the form of higher profit, a practice that requires some departure from marginal-cost pricing.
RegulationRegulation
![Page 33: Monopoly_Chapter 15_Macroeconomics_ Mankew power point slides](https://reader031.vdocuments.net/reader031/viewer/2022022411/58f08f551a28ab2f4c8b4575/html5/thumbnails/33.jpg)
Mankiw et al. Principles of Microeconomics, 2nd Canadian Edition Chapter 15: Page 33
Price
Quantity0
Loss
Demand
Average total costAverage total cost
Marginal cost
Regulated price
Figure 15-9: Marginal Cost Pricing Figure 15-9: Marginal Cost Pricing
![Page 34: Monopoly_Chapter 15_Macroeconomics_ Mankew power point slides](https://reader031.vdocuments.net/reader031/viewer/2022022411/58f08f551a28ab2f4c8b4575/html5/thumbnails/34.jpg)
Mankiw et al. Principles of Microeconomics, 2nd Canadian Edition Chapter 15: Page 34
• Rather than regulating a natural monopoly that is run by a private firm, the government can run the monopoly itself.– Crown Corporations
• Canada Post• CBC• Hydro-Québec• Saskatchewan Tel and B.C. Tel.• Ontario Hydro.
Public OwnershipPublic Ownership
![Page 35: Monopoly_Chapter 15_Macroeconomics_ Mankew power point slides](https://reader031.vdocuments.net/reader031/viewer/2022022411/58f08f551a28ab2f4c8b4575/html5/thumbnails/35.jpg)
Mankiw et al. Principles of Microeconomics, 2nd Canadian Edition Chapter 15: Page 35
• Government can do nothing at all if the market failure is deemed small compared to the imperfections of public policies.
• Government intervention such as regulation can cause average costs to inflate (Political failure), increasing the deadweight loss above its “do nothing” level. (See Figure 15-10)
Doing NothingDoing Nothing
![Page 36: Monopoly_Chapter 15_Macroeconomics_ Mankew power point slides](https://reader031.vdocuments.net/reader031/viewer/2022022411/58f08f551a28ab2f4c8b4575/html5/thumbnails/36.jpg)
Mankiw et al. Principles of Microeconomics, 2nd Canadian Edition Chapter 15: Page 36
Price
Quantity0
Marginal revenue
ATCtrue
ATCinflated
Demand
Marginal cost
C
E
Ptrue
D
Qtrue
G
FPinflated
Qinflated
AP0
B
Q0
Figure 15-10: Political Failure and Average Figure 15-10: Political Failure and Average Costs Curves Costs Curves
![Page 37: Monopoly_Chapter 15_Macroeconomics_ Mankew power point slides](https://reader031.vdocuments.net/reader031/viewer/2022022411/58f08f551a28ab2f4c8b4575/html5/thumbnails/37.jpg)
Mankiw et al. Principles of Microeconomics, 2nd Canadian Edition Chapter 15: Page 37
• Price discrimination is the business practice of selling the same good at different prices to different customers, even though the costs for producing for the two customers are the same.
• Price discrimination is not possible when a good is sold in a competitive market since there are many firms all selling at the market price. In order to price discriminate, the firm must have some market power.
PRICE DISCRIMINATIONPRICE DISCRIMINATION
![Page 38: Monopoly_Chapter 15_Macroeconomics_ Mankew power point slides](https://reader031.vdocuments.net/reader031/viewer/2022022411/58f08f551a28ab2f4c8b4575/html5/thumbnails/38.jpg)
Mankiw et al. Principles of Microeconomics, 2nd Canadian Edition Chapter 15: Page 38
• Perfect Price Discrimination refers to the situation when the monopolist knows exactly the willingness to pay of each customer and can charge each customer a different price.
• Three important effects of price discrimination:– It can increase the monopolist’s profits.– Need to separate customers according to
their ability to pay. • No arbitrage, the process of buying a good in one
market at a low price and selling it in another market at a higher price.
– It can reduce deadweight loss.
PRICE DISCRIMINATIONPRICE DISCRIMINATION
![Page 39: Monopoly_Chapter 15_Macroeconomics_ Mankew power point slides](https://reader031.vdocuments.net/reader031/viewer/2022022411/58f08f551a28ab2f4c8b4575/html5/thumbnails/39.jpg)
Mankiw et al. Principles of Microeconomics, 2nd Canadian Edition Chapter 15: Page 39
(a) Single price monopolistPrice
Quantity 0 0
Price
(b) Perfectly discriminating monopolist
MR
D
MC
Profit
Deadweight loss
Consumer surplus
Monopoly price
Quantity sold
Quantity 0
Profit
D
MC
Quantity sold
Figure 15-11: Welfare with and without Price Figure 15-11: Welfare with and without Price Discrimination Discrimination
![Page 40: Monopoly_Chapter 15_Macroeconomics_ Mankew power point slides](https://reader031.vdocuments.net/reader031/viewer/2022022411/58f08f551a28ab2f4c8b4575/html5/thumbnails/40.jpg)
Mankiw et al. Principles of Microeconomics, 2nd Canadian Edition Chapter 15: Page 40
• Examples of Price Discrimination– Movie tickets– Airline prices– Discount coupons– Financial aid– Quantity discounts
PRICE DISCRIMINATIONPRICE DISCRIMINATION
![Page 41: Monopoly_Chapter 15_Macroeconomics_ Mankew power point slides](https://reader031.vdocuments.net/reader031/viewer/2022022411/58f08f551a28ab2f4c8b4575/html5/thumbnails/41.jpg)
Mankiw et al. Principles of Microeconomics, 2nd Canadian Edition Chapter 15: Page 41
ConclusionConclusion
• How prevalent are the problems of monopolies?– Monopolies are common. – Most firms have some control over their
prices because of differentiated products.
– Firms with substantial monopoly power are rare.
– Few goods are truly unique.
![Page 42: Monopoly_Chapter 15_Macroeconomics_ Mankew power point slides](https://reader031.vdocuments.net/reader031/viewer/2022022411/58f08f551a28ab2f4c8b4575/html5/thumbnails/42.jpg)
Mankiw et al. Principles of Microeconomics, 2nd Canadian Edition Chapter 15: Page 42
SummarySummary
• A monopoly is a firm that is the sole seller in its market.
• It faces a downward-sloping demand curve for its product.
• A monopoly’s marginal revenue is always below the price of its good.
• Like a competitive firm, a monopoly maximizes profit by producing the quantity at which marginal cost and marginal revenue are equal.
![Page 43: Monopoly_Chapter 15_Macroeconomics_ Mankew power point slides](https://reader031.vdocuments.net/reader031/viewer/2022022411/58f08f551a28ab2f4c8b4575/html5/thumbnails/43.jpg)
Mankiw et al. Principles of Microeconomics, 2nd Canadian Edition Chapter 15: Page 43
SummarySummary
• Unlike a competitive firm, its price exceeds its marginal revenue, so its price exceeds marginal cost.
• A monopolist’s profit-maximizing level of output is below the level that maximizes the sum of consumer and producer surplus.
• A monopoly causes deadweight losses similar to the deadweight losses caused by taxes.
![Page 44: Monopoly_Chapter 15_Macroeconomics_ Mankew power point slides](https://reader031.vdocuments.net/reader031/viewer/2022022411/58f08f551a28ab2f4c8b4575/html5/thumbnails/44.jpg)
Mankiw et al. Principles of Microeconomics, 2nd Canadian Edition Chapter 15: Page 44
SummarySummary
• Policymakers can respond to the inefficiencies of monopoly behaviour with competition laws, regulation of prices, or by turning the monopoly into a government-run enterprise.
• If the market failure is deemed small, policymakers may decide to do nothing at all.
![Page 45: Monopoly_Chapter 15_Macroeconomics_ Mankew power point slides](https://reader031.vdocuments.net/reader031/viewer/2022022411/58f08f551a28ab2f4c8b4575/html5/thumbnails/45.jpg)
Mankiw et al. Principles of Microeconomics, 2nd Canadian Edition Chapter 15: Page 45
SummarySummary
• Monopolists can raise their profits by charging different prices to different buyers based on their willingness to pay.
• Price discrimination can raise economic welfare and lessen deadweight losses.
![Page 46: Monopoly_Chapter 15_Macroeconomics_ Mankew power point slides](https://reader031.vdocuments.net/reader031/viewer/2022022411/58f08f551a28ab2f4c8b4575/html5/thumbnails/46.jpg)
Mankiw et al. Principles of Microeconomics, 2nd Canadian Edition Chapter 15: Page 46
The EndThe End