Chapter 10 - Pure monopoly. In this chapter, students will be able to understand: List the characteristics of pure monopoly, explain how a pure monopoly sets its profit-maximizing output and price, discuss the economic effects of monopoly, describe why a monopolist might prefer to charge different prices in different markets, distinguish between the monopoly price, the socially optimal price, and the fair-return price of a government-regulated monopoly. | Pure Monopoly Chapter 10 Chapter Objectives Characteristics of pure monopoly Profit-maximizing output and price Economic effects of monopoly Charging different prices in different markets 10- Characteristics of Monopoly Single seller No close substitutes “Price maker” Blocked entry Nonprice competition 10- Examples of Monopoly Regulated or natural monopolies electricity Near monopolies Western Union Frisbee De Beers Geographic monopolies Professional sport teams Dual objectives of study 10- Barriers to Entry Economies of scale Legal barriers to entry Patents Licenses Ownership or control of essential resources Pricing and other strategic barriers to entry 10- Monopoly Demand Assumptions: Monopoly status is secure No government regulation Single-price monopolist Face down-sloping demand Entire market demand 10- 0 1 2 3 4 5 6 $142 132 122 112 102 92 82 Price and Marginal Revenue Marginal revenue is less than price D A monopolist is selling 3 units at $142 To sell 4, price must be lowered to $132 All customers must pay the same price TR increases $132 minus $30 (3x$10) Gain = $132 Loss = $30 10- 0 1 2 3 4 5 6 $142 132 122 112 102 92 82 D A monopolist is selling 3 units at $142 To sell 4, price must be lowered to $132 All customers must pay the same price TR increases $132 minus $30 (3x$10) $102 becomes a point on the MR curve Try other prices to determine other MR points Gain = $132 Loss = $30 The Constructed Marginal Revenue Curve Must Always Be Less Than the Price MR Price and Marginal Revenue Marginal revenue is less than price 10- Down-Sloping Demand Marginal revenue 0 Total-revenue test (recall) 10- Profit Maximization Output-price determination Marginal revenue marginal cost rule Same cost definitions No supply curve 10- Monopoly Revenue and Costs (1) Quantity Of Output (2) Price (Average . | Pure Monopoly Chapter 10 Chapter Objectives Characteristics of pure monopoly Profit-maximizing output and price Economic effects of monopoly Charging different prices in different markets 10- Characteristics of Monopoly Single seller No close substitutes “Price maker” Blocked entry Nonprice competition 10- Examples of Monopoly Regulated or natural monopolies electricity Near monopolies Western Union Frisbee De Beers Geographic monopolies Professional sport teams Dual objectives of study 10- Barriers to Entry Economies of scale Legal barriers to entry Patents Licenses Ownership or control of essential resources Pricing and other strategic barriers to entry 10- Monopoly Demand Assumptions: Monopoly status is secure No government regulation Single-price monopolist Face down-sloping demand Entire market demand 10- 0 1 2 3 4 5 6 $142 132 122 112 102 92 82 Price and Marginal Revenue Marginal revenue is less than price D A monopolist is selling 3 units at $142 To sell 4,
