TAILIEUCHUNG - Lecture Economics of social issues - Chapter 8: The economics of monopoly power: Who does what to whom?

In this chapter, we addressed the issue of fearing monopoly power in the business world from a systematic, analytical perspective. One of the most important conclusions from this analysis is that bigness, by itself, is not a good predictor of the types of behavior one might expect from monopolies. | Chapter 8 The Economics of Monopoly Power: Who Does What to Whom? Copyright © 2010 by the McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 8- The Economics of Monopoly Power Monopoly Imperfect Competition Monopoly Power – extent of control over supply of product Concentration Ratio Industry Concentration Ratio House Slipper Manufacturing Cigarettes Breweries Primary aluminum Cereal breakfast foods Aircraft engines Automobile manufacturing Soap and other detergents Snack foods Electronic computers Cement Petroleum refineries Synthetic rubber Cement Apparel manufacturing 8- Outputs and Prices Quantity per unit of time Price D D P’ P2 P1 x2 x1 x’ If seller raises price to P2, quantity demanded will fall to x2 Click 1: vertical dashed line rises, horizontal dashed line extends leftward, callout traces that path Click 2: callout flies out Click 3: x’, vertical gridline extends up to D, horizontal gridline extends to P axis, P’ 8- Prices and Output in a Competitive Market Quantity per unit of time Quantity per unit of time Price Price Px Px D D S S MC MR d d X x Table To view the table with the data for the firm graph, click on Table. Click on the slide with the table to return. 8- Marginal Costs and Supply in a Competitive Market Quantity per unit of time Quantity per unit of time (000) Price Price D D S S MC s MR d d MR1 d1 d1 3 3 7 7 a b A B 14 10 10 14 Outputs, Revenues, Costs, and Profits for a Monopoly Firm 1 2 3 4 5 6 7 Output Total Cost (TC) Marginal Cost (MC) Price (Px) Total Revenue (TR) Marginal Revenue (MR) Profits 0 0 20 0 0 1 8 8 20 20 20 12 2 17 9 19 38 18 21 3 27 10 18 54 16 27 4 38 11 17 68 14 30 5 50 12 16 80 12 30 6 63 13 15 90 10 27 7 77 14 14 98 8 21 8 92 15 13 104 6 12 9 108 16 12 108 4 0 10 125 17 11 110 2 -15 8- 8- Competition versus Monopoly Quantity per unit of time (000) D D = MSB S = MSC MR S = MC Click

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