why do monopoly markets exist?(11.6)
DESCRIPTION
why do monopoly markets exist?(11.6). Natural monopoly Barriers to entry. Natural monopoly. High fixed costs Average cost decreases with output: economies of scale Low demand. Besanko & Braeutigam/Microeconomics: An Integrated Approach Chapter 11, Figure 11-17. - PowerPoint PPT PresentationTRANSCRIPT
why do monopoly markets exist?(11.6)
• Natural monopoly
• Barriers to entry
Natural monopoly
• High fixed costs
• Average cost decreases with output: economies of scale
• Low demand
FIGURE 11-17 Natural Monopoly Market
Besanko & Braeutigam/Microeconomics: An Integrated ApproachChapter 11, Figure 11-17
Barrier to entry
• Structural barriers to entry :
1. natural monopoly
2. Network externalities : eBay vs Yahoo
In Taiwan : Yahoo ! Vs 露天市集
Barriers to entry (II)
• Legal barriers to entry: patent
• Strategic barriers to entry :
when an incumbent firm takes explicit steps to deter entry : (price war)
11.1 Profit maximization by a monopolist
FIGURE 11-1 The Monopolist’s Demand Curve is theMarket Demand Curve
Besanko & Braeutigam/Microeconomics: An Integrated ApproachChapter 11, Figure 11-01
Monopolist’s problem
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FIGURE 11-2 Profit Maximization by a Monopolist
Besanko & Braeutigam/Microeconomics: An Integrated ApproachChapter 11, Figure 11-02
(Figure continues on next slide)
FIGURE 11-2 (Continued)
Besanko & Braeutigam/Microeconomics: An Integrated ApproachChapter 11, Figure 11-02 continued
FIGURE 11-3 The Change in Total Revenue When the Monopolist Increases Output
Besanko & Braeutigam/Microeconomics: An Integrated ApproachChapter 11, Figure 11-03
圖有誤• FROM Q=2 TO Q=5
• TR FROM II+I TO II+III
• WHERE I=2*(3)=6, III=3*7=21
• NET INCREASE=15
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FIGURE 11-4 Total, Average, and Marginal Revenue
Besanko & Braeutigam/Microeconomics: An Integrated ApproachChapter 11, Figure 11-04
(Figure continues on next slide)
FIGURE 11-4 (Continued)
Besanko & Braeutigam/Microeconomics: An Integrated ApproachChapter 11, Figure 11-04 continued
FIGURE 11-5 The Monopolist’s Profit-Maximization Condition
Besanko & Braeutigam/Microeconomics: An Integrated ApproachChapter 11, Figure 11-05
A monopolist does not have a supply curve
• The monopolist might sell the same quantity at different prices
FIGURE 11-6 The Monopolist Does Not Have a Supply Curve
Besanko & Braeutigam/Microeconomics: An Integrated ApproachChapter 11, Figure 11-06
11.2Elasticity and marginal revenue
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FIGURE 11-7 How Price Elasticity of Demand AffectsMonopoly Pricing
Besanko & Braeutigam/Microeconomics: An Integrated ApproachChapter 11, Figure 11-07
FIGURE 11-8 Marginal Revenue and Price Elasticity of Demand for a Linear Demand Curve (P=a-b Q)
Besanko & Braeutigam/Microeconomics: An Integrated ApproachChapter 11, Figure 11-08
FIGURE 11-9 Why a Profit-Maximizing Monopolist Will Not Operate on the Inelastic Region of the Market Demand Curve
Besanko & Braeutigam/Microeconomics: An Integrated ApproachChapter 11, Figure 11-09
Inverse elasticity pricing rule (IEPR)
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Quantifying market power
• Market power: The power of an individual economic agent to affect the price
• Lerner Index of market power
0 < (P-MC)/P <1• Why ?• (P-MC)/P relates to elasticity • Elasticity indicates the degree of substitutes• 彈性大 : 替代性高 , 欠缺 market power
11.4 Multi-plant monopoly
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FIGURE 11-14 Profit Maximization by a Multiplant Monopolist
Besanko & Braeutigam/Microeconomics: An Integrated ApproachChapter 11, Figure 11-14
OPEC的配額生產• 合作的方法• 不穩定的合作 :
FIGURE 11-15 Profit Maximization by a Cartel
Besanko & Braeutigam/Microeconomics: An Integrated ApproachChapter 11, Figure 11-15
11.5 The welfare economics of monopoly
• Deadweight loss : F+G
• Rent seeking activities : B+E+H
FIGURE 11-16 Deadweight Loss in a Monopoly
Besanko & Braeutigam/Microeconomics: An Integrated ApproachChapter 11, Figure 11-16
FIGURE 11-18 The Monopoly Equilibrium
Besanko & Braeutigam/Microeconomics: An Integrated ApproachChapter 11, Figure 11-18
FIGURE 11-19 Deadweight Loss from Monopoly
Besanko & Braeutigam/Microeconomics: An Integrated ApproachChapter 11, Figure 11-19
• Suppose a monopolist faces a demand given by P=100-Q. The monopolist has two plants. The first has a marginal cost curve given by MC1=10+Q1 and the second has a marginal cost curve by MC2=20+Q2
Q1: find the monopolist’s optimal total quantity and price
Q2: find the optimal division of the monopolist’s quantity between its two plants