Pure Monopoly

1
24
Pure Monopoly
By
Arleny Ibanez Eva Litvinenko
2
Characteristics
Single seller
Price maker
Blocked entry
No close substitutes
Nonprice competition
3
Near-monopolies
Professional
De Beers
Sports Teams
Wham-O
4
Barriers
Economies of Scale
Legal Barriers
Patents
Licenses
Control of resources
5
Economies of Scale
20
15
Average total cost
10
0
50
200
100
Quantity
6
Monopoly Demand
MR lt Price
Prices set in the Elastic region.
Demand curve is downward-sloping
Supply influenced by output decisions.
7
Elastic
Inelastic
200
150
Price
100
50
0
Demand and marginal-revenue curve
750
500
Total revenue
250
0
2
4
6
8
10
12
14
16
18
Q
Total-revenue curve
8
MR MC Rule
200
175
150
125
Price, costs, and revenue
100
75
50
Q
10
9
8
7
6
5
4
3
2
1
0
Quantity
9
Facts
Seeks maximum total profit, no maximum price or
unit profit.
No supply curve
Yields neither productive nor allocative
efficiency.
10
Costs Complications
X-Inefficiency
Economies of Scale
Technological Advance
Rent-Seeking Expenditures
11
X-Inefficiency
ATCx
ATC1

Average total costs
ATCx
ATC2
Q2
Q1
0
Quantity
12
Price Discrimination
Conditions
Monopoly power Market segregation No resale
13
Some Examples
Golf Courses
Airlines
Electricity
Heating
Movie Theaters
14
Discriminating vs nondiscriminating
P1
Price and costs
Price and costs
A2
A1
Q1
Q2
Q1
Single-price monopolist
Perfectly discriminating monopolist
15
Regulated Monopoly
Socially Optimal Price P MC
Fair-Return Price P ATC
Pm
Price and costs (dollars)
Pf
Pr
Qm
Qf
Qr
Quantity
16
The End
Thank you for your cooperation.