Monopoly Profit Maximizing Analysis

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Monopoly Profit Maximizing Analysis Microeconomics Course Assignment In fulfillment of Course ePortfolio and CSIS requirement Monopoly Profit Maximizing Analysis Part 2 QuesGons: Total Price Per Total Average Marginal Q1. Explain in your own words why MC=MR is a profit maximizing producGon level for the Monopoly Total Total Marginal A1- In a Monopoly mariginal cost = marginal revenue, in other words the difference in Output Unit Revenues Total Cost Revenue Costs (TC) Profit (TP) Cost (MC) the amount of money spend to produce or make the addiRonal product sold is equal to Units (Demand) (TR) (ATC) (MR) the difference in the amount of money made from selling it. For example, if it will cost 0 $8.00 $0.00 $10.00 ($10.00) -- the company $25 to produces five units and $29 to produce six but and they make $24 1 $7.80 $7.80 $14.00 ($6.20) $14.00 $4.00 $7.80 when they sell five units but they only make $26 when they sell six. The marginal cost is 2 $7.60 $15.20 $17.50 ($2.30) $8.75 $3.50 $7.40 $4 but the marginal revenue is only $2. So they would be spending more than they are 3 $7.40 $22.20 $20.75 $1.45 $6.92 $3.25 $7.00 making. 4 $7.20 $28.80 $23.80 $5.00 $5.95 $3.05 $6.60 Q2. Explain how the monopolist determines where to price his product A2- In a Monopoly they set the price where MC=MR, however their demand curve is 5 $7.00 $35.00 $26.70 $8.30 $5.34 $2.90 $6.20 only an esRmated demand since they have no compeRtors to base the demand on. 6 $6.80 $40.80 $29.50 $11.30 $4.92 $2.80 $5.80 They adjust their adjust their pricing to fit the demand once it is determined. 7 $6.60 $46.20 $32.25 $13.95 $4.61 $2.75 $5.40 Q3. A monopoly is considered an inefficient use of resources for what two reasons? 8 $6.40 $51.20 $35.10 $16.10 $4.39 $2.85 $5.00 A3- In a Monopoly they tend to produce less to keep the demand higher, allowing them 9 $6.20 $55.80 $38.30 $17.50 $4.26 $3.20 $4.60 to charge a higher price. They are not using all their resources available to produce the 10 $6.00 $60.00 $42.70 $17.30 $4.27 $4.40 $4.20 product. 11 $5.80 $63.80 $48.70 $15.10 $4.43 $6.00 $3.80 They also are not supplying enough to fulfill the actual demand, leaving the people 12 $5.60 $67.20 $57.70 $9.50 $4.81 $9.00 $3.40 unsasfied and maybe deterring the interest of potenRal clients. Demand Price $16.00 Monopoly Profit DeterminaGon $14.00 MC = MR $12.00 Average Total Costs $10.00 $8.00 Costs $6.00 Price Per Unit (Demand) Monopoly Profit $4.00 Marginal Cost (MC) Marginal Revenue (MR) $2.00 Price, Marginal Revenue, and Average Total Cost (ATC) $0.00 0 1 2 3 4 5 6 7 8 9 10 11 12 Output $80.00 Revenue - Cost Comparison $70.00 TR $60.00 TC $50.00 Total Revenues (TR) $40.00 $30.00 Total Costs (TC) $20.00 $10.00 Total Costs / Total Revenue $0.00 0 1 2 3 4 5 6 7 8 9 10 11 12 Output Monopoly Profit Maximizing Analysis.

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“Single” Monopoly Profit Theory and Its' Exceptions
“Single” Monopoly Profit Theory and its’ exceptions Liberty Mncube Chief Economist Competition Commission South Africa 27/04/2016 ICN Singapore 1 Example: Maintaining the monopoly in the tying product – “Single” Monopoly Profit Theory • Loosely based on a current case, awaiting for adjudication by the Tribunal • Two separate markets – one for embossing machines (the machine used to emboss a blank number plate) and one for blank number plates • To operate a number plate embossing shop, one – Necessary conditions for it to requires both products – the machine and blank hold include: number plates on which to emboss on 1. The monopolist has a durable and unregulated • AN Plates has a monopoly in manufacturing monopoly embossing machines 2. Products are consumed in • AN Plates was a small player (2009) in fixed proportions manufacturing blank number plates 3. Consumers have identical • The single monopoly profit theory suggests that preferences AN plates would have no incentive to tie its 4. No efficiencies of number plates to the embossing machines integration • AN Plates would simply extract its all the monopoly profits from selling embossing machines at a monopoly price 2 Example: Maintaining the monopoly in the tying product • The SMP theory assumes a durable monopoly in the • In 2009, AN Plates introduced exclusive manufacturing of embossing machines supply contracts to its customers • These contracts ensure that any customer • If this is not the case, tying then becomes a way to that purchases an embossing machine maintain the monopoly in the manufacturing of from AN Plates will procure all of their embossing machines blank number plate requirements exclusively from AN Plates • Without tying, firms that produce the blank number • Customers enter into these contracts for plates could use the entry as a foothold for entering five years.
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ECON 301 Notes 10
Intermediate Microeconomics MONOPOLY BEN VAN KAMMEN, PHD PURDUE UNIVERSITY Price making A monopoly seller in a goods market is the conceptual opposite from perfectly competitive firms. ◦ The monopolist does not face competition from other firms because he is the only seller. ◦ He is still constrained in his behavior, however, by consumers’ willingness to pay for his output, i.e., by the demand curve. A monopolist faces the entire market demand for his good, though, so when he chooses an output level, he implicitly determines the price. ◦ Thus the term “price maker”. Competitive firm’s demand curve Monopolist’s demand curve Total revenue Competitive firms get the same price for all units sold, so: = . ∗ If a monopolist wants to sell more, he has to cut the price on all units sold. TR is still equal to , but P* is now a function of Q. ◦ Note: Q as market quantity∗ as distinct from q for firm’s quantity. Specifically the demand curve tells you P* as a function of Q. Example Say that market demand is given by: 1 = 10 20 2 . and the inverse demand you see− on Marshall’s diagram: = 200– 20 . 1 2 = , where P is given by the inverse demand function. = 200 20 . 1 = – 20 2. − 3 2 Taking the partial derivative 200 to get MR: = 200 30 . 1 2 − MR is below the price q* The product rule in calculus The basic reason that < for a firm facing downward- sloping demand has to do with the product rule in calculus. The product rule is as follows: when you multiply two functions of the same variable together, the differential of the product is: ( ) ( ) ( ) = ℎ ≡ +∗ ℎ � � The product rule in calculus So if ( ) = , and ( ) = [ ] = ( ), = , and = = ∗ + .
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Monopoly Monopoly Definition a Firm Is Considered a Monopoly If . . . It Is the Sole Seller of Its Product. Its Product Does
Monopoly Monopoly Definition Herbert Stocker [email protected] A firm is considered a monopoly if . Institute of International Studies University of Ramkhamhaeng it is the sole seller of its product. & Department of Economics University of Innsbruck its product does not have close substitutes. Repetition Repetition Remember: Technological restrictions are the same for Remember: monopolies and for firms on perfectly Firms maximize their profits subject to the competitive markets. restrictions they face. These are embedded in the cost function: There are two kinds of restrictions: Remember that we did not need the price of Technological restrictions. output for the derivation of the cost function! Market restrictions. Only market restrictions differ between monopolies and firms on perfectly competitive markets. 1 Monopoly & Perfect Competition Monopoly & Perfect Competition Monopoly: A Monopolist is the only supplier and there are no close substitutes for his Perfect Competition: Every supplier product. Therefore he perceives that the perceives demand for his own product as demand for his product is falling when he perfectly elastic, he can sell every unit of increases price. output for the same price. Monopolistic firms are price-seekers; if they Therefore, marginal revenue is simply the price, want to sell more, they can do so only at a and firms are price-takers! lower price! This has important implications for the marginal revenue of a monopoly, e.g. marginal revenue no longer equals price! Perfect Competition vs. Monopoly Total and Marginal Revenue Perfect Competition: Monopoly: Example: P P ‘perceived’ ‘perceived’ Market Demand Market Demand Q = 6 − P Total Marginal Average Price Quantity Revenue Revenue Revenue PQ R = P × Q MR AR = P 6 0 0 – – 5 1 5 5 5 4 2 8 3 4 Q Q 3 3 9 1 3 Each producer perceives the Monopolist perceives demand 2 4 8 −1 2 to be less than perfectly demand for his product as 1 5 5 −3 1 elastic.
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Monopoly Frank Gao 1 Introduction . A monopoly is a firm that is the sole seller of a product without close substitutes. Example: BC Hydro . The key difference between monopoly and perfect competition: A monopoly firm has market power, the ability to influence the market price of the product it sells. A competitive firm has no market power. It’s a price taker. 2 Why Monopolies Arise The main cause of monopolies is barriers to entry – other firms cannot enter the market. Three sources of barriers to entry: 1. A single firm owns a key resource. E.g., De Beers owns most of the world’s diamond mines 2. The govt gives a single firm the exclusive right to produce the good. E.g., patents, copyright laws Copyright © 2011 Nelson Education Limited 3 Why Monopolies Arise 3. Natural monopoly: a single firm can produce the entire market Q at lower cost than could several firms. Example: 1000 homes need electricity Cost Electricity ATC slopes ATC is lower if downward due one firm services to huge FC and all 1000 homes $80 small MC than if two firms $50 ATC each service 500 homes Q because of IRS. 500 1000 Copyright © 2011 Nelson Education Limited 4 Monopoly vs. Competition: Demand Curves In a competitive market, the market demand curve slopes downward. A competitive firm’s demand curve But the demand curve P faced by any individual firm is horizontal at the market price. D The firm can increase Q without lowering P, so MR = P for the Q competitive firm. Copyright © 2011 Nelson Education Limited 5 How Does A Monopolist Set the Price? Two types of Pricing policies: 1.
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MONOPOLY BEN VAN KAMMEN, PHD PURDUE UNIVERSITY Outline of Objectives 1
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3.2 Monopoly Profit-Maximizing Solution
Chapter 3. Monopoly and Market Power Barkley 3.2 Monopoly Profit-Maximizing Solution The profit-maximizing solution for the monopolist is found by locating the biggest difference between total revenues and total costs, as in Equation 3.1. (3.1) max π = TR – TC 3.2.1 Monopoly Revenues Revenues are the money that a firm receives from the sale of a product. Total Revenue [TR] = The amount of money received when the producer sells the product. TR = PQ Average Revenue [AR] = The average dollar amount receive per unit of output sold AR = TR/Q Marginal Revenue [MR] = the addition to total revenue from selling one more unit of output. MR = ΔTR/ΔQ = ∂TR/∂Q. TR = PQ (USD) AR = TR/Q = P (USD/unit) MR = ΔTR/ΔQ = ∂TR/∂Q (USD/unit) For the agricultural chemical company: TR = PQ = (100 - Q)Q = 100Q – Q2 AR = P = 100 – Q MR = ∂TR/∂Q = 100 – 2Q Total revenues for the monopolist are shown in Figure 3.2 Total Revenues are in inverted parabola. The maximum value can be found by taking the first derivative of TR, and setting it equal to zero. The first derivative of TR is the slope of the TR function, and when it is equal to zero, the slope is equal to zero. (3.2) max TR = PQ ∂TR/∂Q = 100 – 2Q = 0 Q* = 50 86 Chapter 3. Monopoly and Market Power Barkley Substitution of Q* back into the TR function yields TR = USD 2500, the maximum level of total revenues. TR (USD) 2500 TR Q* = 50 100 Q chemical (m oz) Figure 3.2 Total Revenues for a Monopolist: Agricultural Chemical AR MR (USD/ oz) 100 D = AR MR 50 100 Q chemical (m oz) Figure 3.3 Per-Unit Revenues for a Monopolist: Agricultural Chemical 87 Chapter 3.
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The Economics of Food and Agricultural Markets
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Chapter 14 Monopoly
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