Pure Monopoly

1
Pure Monopoly

• Chapter 11

2
Barriers to Entry

• Scale Economies
• Big firms enjoy lower production costs than small
  firms
• Renders Monopoly Organization more efficient
• Patents and Licenses
• Ownership or Control of Resources
• Strategic Barriers to Entry
• Cut-throat Competition
• Price-slashing aimed at new entrants

3
Diminishing Returns to Scale
Chapter 24 Figure 24.1
4
Marginal Revenue in Monopoly

• Perfectly competitive firms face perfectly
  elastic demand at the firm level
• Monopoly firms face the industry demand curve
• which is downward-sloping
• Thus, to increase sales, a monopoly firm must
  lower the selling price
• unlike for a perfectly competitive firm
• a monopoly firms marginal revenue falls more
  rapidly than the price

5
Chapter 24 Table 24.1
6
Chapter 24 Figure 24.2
7
MR 0 at Unit-elastic Output
Chapter 24 Figure 24.3(a)
8
Monopolies always operate in the Elastic Region
of Industry Demand, never in the Unit-elastic or
Inelastic Regions
9
Chapter 24 Figure 24.3(b)
10
Profit Maximum for a Monopolist
Chapter 24 Figure 24.4
11
Chapter 24 Table 24.2
12
Loss-minimizing Output for a Monopolist
Chapter 24 Figure 24.5
13
Allocative and Productive Inefficiencyunder
Monopoly
Chapter 24 Figure 24.6
14
Monopolists and Consumer Surplus

• Monopolists capture some Consumer Surplus
• Consumers would be better served by Perfect
  Competition
• Perfectly-discriminating Monopolists
• charge each customer their marginal benefit
• capturing all consumer surplus

15
X-inefficiency
Chapter 24 Figure 24.7
16
A Perfectly-discriminating Monopolist
Chapter 24 Figure 24.8
17
A Monopoly under Regulation
Chapter 24 Figure 24.9