monopoly: this is a situation where a single producer (firm) is the sole producer of a good that has...

Monopoly: This is a situation where a single producer (firm) is the sole producer of a good that has no close substitutes.

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Monopoly:Monopoly:

This is a situation where a single producer (firm) is the sole producer of a good that has no close substitutes.

Sources of Monopoly:Sources of Monopoly:

The firm may control the entire supply of raw materials required to produce that output.

The firm may have a patent or copyright.

The case of “Natural Monopoly”. Economies of Scale may permit only one firm to be efficient in the market.

The case of Government Franchises.

Page 3: Monopoly: This is a situation where a single producer (firm) is the sole producer of a good that has no close substitutes

Characteristics of Monopoly:Characteristics of Monopoly:

A single seller: A single firm produces all industry output. The monopoly is the industry.

Blockaded entry and exit: Firms are heavily restricted from entering or leaving the industry.

Imperfect dissemination of information: Cost, price, and product quality information are withheld from uninformed buyers.

Page 4: Monopoly: This is a situation where a single producer (firm) is the sole producer of a good that has no close substitutes

AVC

ATCMC

MR D

Quantity

Price

Page 5: Monopoly: This is a situation where a single producer (firm) is the sole producer of a good that has no close substitutes

ATC

AVC

MR D

Quantity

Price

Page 6: Monopoly: This is a situation where a single producer (firm) is the sole producer of a good that has no close substitutes

ATC

AVC

MR D

Quantity

Price

Page 7: Monopoly: This is a situation where a single producer (firm) is the sole producer of a good that has no close substitutes

MR D

Quantity

Price

LAC

LMC

Page 8: Monopoly: This is a situation where a single producer (firm) is the sole producer of a good that has no close substitutes

LMC=LACPC

Quantity

Price

PMM

onop

olist

’s

Profit

Deadweight Loss under Monopoly

Page 9: Monopoly: This is a situation where a single producer (firm) is the sole producer of a good that has no close substitutes

Rate of Return on Stockholders’ Equity:Rate of Return on Stockholders’ Equity:

Equity

IncomeNet ROE

Stockholders’ Equity = The book value of total assets minus total liabilities.

Equity

Assets Total

Sales

IncomeNet ROE

Page 10: Monopoly: This is a situation where a single producer (firm) is the sole producer of a good that has no close substitutes

Monopolistic Competition:Monopolistic Competition:

It is a form of market organization in which there are many sellers of a heterogeneous or differentiated product, and entry into and exit from the industry are rather easy in the long run.

Differentiated Product:Differentiated Product:

Products which are similar but not identical and satisfy the same basic need.

Page 11: Monopoly: This is a situation where a single producer (firm) is the sole producer of a good that has no close substitutes

Characteristics:Characteristics:

Large number of buyers and sellers.

Product Heterogeneity.

Free Entry and Exit.

Perfect dissemination of information.

Page 12: Monopoly: This is a situation where a single producer (firm) is the sole producer of a good that has no close substitutes

b c

Quantity

Price

LACLMC

MR1

Page 13: Monopoly: This is a situation where a single producer (firm) is the sole producer of a good that has no close substitutes

Quantity

Price

LACLMC

MR1

Page 14: Monopoly: This is a situation where a single producer (firm) is the sole producer of a good that has no close substitutes

b c

Quantity

Price

LMC

LACde

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