Lecture 09 - ECO100

Lecture 09 - ECO100 - ECO 100Y ECO 100Y t d t i t t d t i t...

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Unformatted text preview: ECO 100Y ECO 100Y t d t i t t d t i t Introduction to Introduction to conomics conomics Economics Economics Lecture 9: Lecture 9: Monopoly Monopoly Gustavo Indart Slide 1 haracteristics of a Monopoly haracteristics of a Monopoly Characteristics of a Monopoly Characteristics of a Monopoly There is only one supplier of a commodity The commodity has no close substitutes There is a barrier to the entry of new firms Gustavo Indart Slide 2 arriers to Entry arriers to Entry Barriers to Entry Barriers to Entry Barriers to entry are legal or natural impediments rotecting a firm from competition from potential new protecting a firm from competition from potential new entrants egal barrier to entry Legal barrier to entry Public franchise Government licence Patent atural barriers to entry Natural barriers to entry Unique source of supply of a raw material conomies of scale Gustavo Indart Slide 3 Economies of scale Single Single-Price Unregulated Price Unregulated onopoly onopoly Most monopolies are regulated by government We will examine the case of an unregulated monopoly This will show why governments regulate onopolies monopolies We will begin with the analysis of a single-price monopoly That is, a monopoly that charges the same price for ch and every unit of its output Gustavo Indart Slide 4 each and every unit of its output Short Short-Run Cost Schedule Run Cost Schedule $ MC C AC AVC Q We will assume that the cost schedule of a monopolist is similar to that of a mpetitive firm that is mainly that the Gustavo Indart Slide 5 competitive firm, that is, mainly that the average total cost curve is U-shaped . Demand Curve Facing a Demand Curve Facing a onopolist onopolist P What distinguishes a monopoly firm m firm th t p r t nd r p rf t from a firm that operates under perfect competition is the firms demand curve. Since in a monopoly there is only one firm, the demand curve facing that firm is the industry demand curve. D Gustavo Indart Slide 6 Q The Monopolists Revenue The Monopolists Revenue Functions Functions Total Revenue ( TR ): TR = P*Q verage Revenue R Note that the market demand curve is the monopolists AR curve. Average Revenue ( AR ): TR P*Q AR = = = P Since the monopolists demand curve is downward sloping, price h h Q Q Marginal Revenue ( MR ): changes when output changes. TR (P*Q) P Q + Q P P MR = = = = P + Q Gustavo Indart Slide 7 Q Q Q Q Effect on Revenue of an Increase Effect on Revenue of an Increase in Quantity in Quantity P As we move from point A to point B on the demand curve, TR decreases as a result of the decrease in P and increases as a sult of the increase in Q A P 1 result of the increase in Q....
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Lecture 09 - ECO100 - ECO 100Y ECO 100Y t d t i t t d t i t...

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