Nov 9 and 11 Imperfect Competition Models

Producer price determination under monopoly market

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Producer Price Determination Under   Monopoly Market Structure AEC 305, Food and Agricultural Marketing Principles AEC 305, Food and Agricultural Marketing Principles Price Quantity MC P D MR Q 1 Monopolist has control over setting  quantity and price (price setter) …  (Note: P>MR=MC) Monopolist faces a downward sloping demand  curve which is the market demand curve MC
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    Monopoly Complete freedom in selecting price or quantity Monopolist faces the entire (downward sloping)  demand curve Prices will be higher and quantity lower than those  represented by competitive market conditions,  assuming same costs and demand schedules No guarantee of profitability … perhaps there is a  reason there is only one firm Would a monopolist ever consider selling at a price  that did not maximize profits? (threat of entry or government regulation) AEC 305, Food and Agricultural Marketing Principles AEC 305, Food and Agricultural Marketing Principles
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    Reasons for the Existence of a Monopoly Single seller has a patent/sole owner of  technology The potential benefits of economies of scale  for a single “large” firm versus a higher cost  structure for a large number of smaller firms  Location advantages Government sanctioned Quality advantage that no other firm/market  can duplicate AEC 305, Food and Agricultural Marketing Principles AEC 305, Food and Agricultural Marketing Principles
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    Monopoly -- Examples Sole Owner of Patent/Copyright/Technology/Rights – Microsoft  (Windows), NCAA (college sports), Pharmaceutical Companies  Government Sanctioned  Public Utilities (e.g. water and electric companies) Trade Policy (restrict imports) Location Monopolies  (e.g., corner grocery in isolated area, gas station/agribusiness  in rural area, cinema/stadium/theme park concessions, airport  dining/shops) Quality/Quantity Superiority Sometimes Lead to “Monopoly Market  Power” (e.g., U.S. tobacco prior to 1970s, first local tomatoes at local  farmers market) AEC 305, Food and Agricultural Marketing Principles AEC 305, Food and Agricultural Marketing Principles
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  Comparisons of Industry Market  Structures Characteristics Perfect  Competition Monopolistic  Competition Oligopoly Oligopsony Monopoly Monopsony Number of Buyers/Sellers (very large number, many,  few, one) Product Differentiation (Homogeneous, Slightly  Differentiated, Unique) Ease of Entry/Exit (Easy, Relatively Easy  Difficult, Difficult, Closed) Degree of Info Available to  Competitors (Perfect, A lot, Limited,  None) Influence on Price  (yes or no)   Very large # Many Few          One Homogenous         Slightly           Homogeneous       Unique                                                                 
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