资源描述
Chapter 11Monopoly and MonopsonyMonopoly:one parrot.Copyright 2014 Pearson Education,Inc.All rights reserved.11-2 Chapter 11 OutlineChallenge:Pricing Apples iPad11.1Monopoly Profit Maximization11.2Market Power and Welfare 11.3Taxes and Monopoly11.4 Causes of Monopolies11.5 Government Actions that Reduce Market Power11.6Monopoly Decisions Over Time and Behavioral Economics11.7Monopsony Challenge SolutionCopyright 2014 Pearson Education,Inc.All rights reserved.11-3 Challenge:Pricing Apples iPadBackground:Apple started selling the iPad on April 3,2010.People loved the original iPad.Even at$499 for the basic model,Apple had a virtual monopoly on high-end tablets in its first year.The company still has a stronghold on the high-end tablet market.Questions:How did Apple set the price for the iPad when it was essentially the only game in town?(See Solved Problem 11.2)How did the presence of me-too rival products produced by firms with higher marginal costs affect Apples pricing more recently?(See Challenge Solution)Copyright 2014 Pearson Education,Inc.All rights reserved.11-4 11.1 Monopoly Profit MaximizationA monopoly is the only supplier of a good for which there is no close substitute.Monopolies are not price takers like competitive firmsMonopoly output is the market outputMonopoly demand curve is the market demand curveMonopolists can set their own price given market demand Because demand is downward sloping,monopolists set price above marginal cost to maximize profit.Like all firms,monopolies maximize profits by setting price or output so that marginal revenue(MR)equals marginal cost(MC).Copyright 2014 Pearson Education,Inc.All rights reserved.11-5 11.1 Monopoly Profit MaximizationMonopolies maximize profits by setting price or output so that marginal revenue(MR)equals marginal cost(MC).Profit function to be maximized by choosing output,Q:(Q)=R(Q)C(Q),whereR(Q)is the revenue functionC(Q)is the cost functionThe necessary condition for profit maximization:The sufficient condition for profit maximization:Copyright 2014 Pearson Education,Inc.All rights reserved.11-6 11.1 Monopoly Profit MaximizationA firms MR curve depends on its demand curve.MR is also downward sloping and lies below DIf p(Q)is the inverse demand function,which shows the price received for selling Q,then the marginal revenue function is:Given a positive value of Q,MR lies below inverse demand.Selling one more unit requires the monopolist to lower the pricePrice is lowered on the marginal unit and all other units soldCopyright 2014 Pearson Education,Inc.All rights reserved.11-7 11.1 Monopoly Profit MaximizationMoving from Q to Q+1,the monopolys marginal revenue is less than the price it charges by an amount equal to area CCopyright 2014 Pearson Education,Inc.All rights reserved.11-8 11.1 MR Curve and the Price Elasticity of DemandWe can rewrite MR function so that it is stated in terms of elasticity:This makes the relationship between MR,D,and elasticity quite clear.Where demand hits the vertical axis,MR=P and demand is perfectly elastic.Everywhere that MR 0,demand is elastic.The quantity at which MR=0 corresponds to the unitary elastic portion of the demand curve.Everywhere that MR 1 firmsExamples:public utilities such as water,gas,electric,and mail deliveryNatural monopolies may have high fixed costs,but low and fairly constant marginal costs.Copyright 2014 Pearson Education,Inc.All rights reserved.11-26 11.4 Cost Advantages of MonopolyA natural monopoly has economies of scale at all levels of output,so average costs fall as output increases.Copyright 2014 Pearson Education,Inc.All rights reserved.11-27 11.5 Government Actions that Create MonopoliesGovernments typically create monopolies in 1 of 3 ways:1.By making it difficult for new firms to obtain a license to operateExample:U.S.cities require new hospitals to secure a certificate of need to demonstrate the need for a new facility2.By granting a firm the rights to be a monopolyExample:public utilities operated by private company3.By auctioning the rights to be a monopolyExample:selling government monopolies to private firms(privatization)Copyright 2014 Pearson Education,Inc.All rights reserved.11-28 11.5 Government Actions that Reduce Market PowerGovernments limit monopolies market power in various ways:1.Optimal Price Regulation:government regulates the monopoly by imposing a price ceiling that is equal to the competitive price,which eliminates DWL.2.Nonoptimal Price Regulation:government-imposed price ceiling is not set at the competitive level,which reduces but does not eliminate DWL.3.Increasing Competition:allowing/encouraging market entry by new domestic firms and ending import bans that kept out international firms.Copyright 2014 Pearson Education,Inc.All rights reserved.11-29 11.5 Government Actions that Reduce Market PowerWith optimal price regulation,the government imposes a price ceiling that is equal to the competitive price.Copyright 2014 Pearson Education,Inc.All rights reserved.11-30 11.6 Monopoly Decisions Over Time and Behavioral EconomicsIn some markets,todays decisions affect demand or cost in the future.Some monopoly decisions may maximize LR profit but not SR profit.Example:low introductory pricing to build up customersWhy would consumers demand in the future depend on a monopolys actions in the present?Copyright 2014 Pearson Education,Inc.All rights reserved.11-31 11.6 Monopoly Decisions Over Time and Behavioral EconomicsA good has a network externality if one persons demand depends on the consumption of a good by others.With a positive network externality,value to the consumer grows as the number of units sold increases(e.g.telephones,ATMs)With a negative network externality,value to the consumer grows as fewer people possess the good(e.g.numbered paintings)A bandwagon effect is a popularity-based explanation for a positive network externality(e.g.iPod,UGG boots).A snob effect is an explanation for a negative network externality(e.g.original painting by an unknown artist).Copyright 2014 Pearson Education,Inc.All rights reserved.11-32 11.7 MonopsonyA monopsony is a single buyer in a market,much like a monopoly is a single seller in a market.A monopsony exercises its market power by buying at a price below the price that competitive buyers would pay.Examples:professional baseball teams,university in a college town,mining in a“company town”Copyright 2014 Pearson Education,Inc.All rights reserved.11-33 11.7 MonopsonySuppose that a firm is the sole employer in town and uses only one factor,L,to produce a final good.The monopsonys total expenditure is E=w(L)L,where w(L)is the wage given by the market labor supply curve.The firms marginal expenditure is then:ME is upward sloping and greater than w(L),the labor supply curve.The firm hires labor until the marginal value of the last worker hired equals the firms marginal expenditure.Copyright 2014 Pearson Education,Inc.All rights reserved.11-34 11.7 MonopsonyEquilibrium is determined by the intersection of marginal expenditure and demand.Copyright 2014 Pearson Education,Inc.All rights reserved.11-35 11.7 Monopsony with CalculusAssume the firm is a price taker in the output marketMaximize profit by choosing L given production function,Q(L):FOC:The firm hires labor until the value of the output produced by the last worker equals the marginal expenditure on the last worker.The markup of ME over the wage is inversely proportional to the elasticity of supply,:Copyright 2014 Pearson Education,Inc.All rights reserved.11-36 11.7 Welfare Effects of MonopsonyMonopsony results in welfare loss of C+E relative to competition.Copyright 2014 Pearson Education,Inc.All rights reserved.11-37 Challenge SolutionCopyright 2014 Pearson Education,Inc.All rights reserved.11-38 Figure 11.3 Maximizing Profit
展开阅读全文