pure monopoly

Price discrimination can take three forms

1.Charging each customer in a single market the maximum price he or she is willing to pay. 2.Charging each customer one price for the first set of units purchased, and a lower price for subsequent units. 3.Charging one group of customers one price and another group a different price.

Conditions needed for successful price discrimination

1.Monopoly power is needed with the ability to control output and price. 2.The firm must have the ability to segregate the market, to divide buyers into separate classes that have a different willingness or ability to pay for the product (usually based on differing elasticities of demand). 3.Buyers must be unable to resell the original product or service.

Our analysis of monopoly demand makes three assumptions

1.Patents, economies of scale, or resource ownership secure the firm's monopoly. 2.No unit of government regulates the firm. 3.The firm is a single price monopolist; it charges the same price for all units of output.

Examples of price discrimination

Airlines charge higher fares to executive travelers (inelastic demand) than vacation travelers (elastic demand).

the goal of the monopolists is

Total, not unit, profits

Allocative efficiency is not achieved because price is

above marginal cost

Ownership or control of essential resources is

another barrier to entry.

On the other hand, research can lead to lower unit costs, which help monopolies

as much as any other type of firm.

The firm is a price maker

because the firm has considerable control over the price because it can control the quantity supplied.

The marginal-revenue curve is

below the demand curve

Monopolies will sell a smaller output and charge a higher price than would

competitive producers selling in the same market, i.e., assuming similar costs.

Monopoly demand is the industry (market) demand and is therefore

downward sloping

Unlike the purely competitive firm, the pure monopolist can continue to receive

economic profits in the long run.

Also, research can help the monopoly maintain its barriers to

entry against new firms.

monopolist produces where marginal revenue and marginal cost are

equal

Government usually gives one firm the right to operate a public utility industry in exchange

for government regulation of its power.

Professional sports leagues

grant team monopolies to cities

the monopolist will expand output only

in the elastic portion of its demand curve

The total revenue test shows that the monopolist will avoid the

inelastic segment of its demand schedule

Analysis of monopolies yields

insights concerning monopolistic competition and oligopoly; the more common types of market situations

Monopoly price will exceed marginal cost, because

it exceeds marginal revenue and the monopolist produces where marginal revenue and marginal cost are equal

Productive efficiency is not achieved because the monopolist's output is

less than the output at which average total cost is at its minimum.

The price and quantity supplied will always depend on

location of the demand curve.

Price will exceed marginal revenue because the monopolist must

lower the price to sell the additional unit

A monopolist cannot charge the highest price it can get, because it will

maximize profits where total revenue minus total cost is greatest. This depends on quantity sold as well as on price and will never be the highest price possible.

Although there are legitimate concerns of the effects of monopoly power on the economy

monopoly power is not widespread.

because a very large firm with a large market share is most efficient

new firms cannot afford to start up in industries with economies of scale

he pure monopolist has no supply curve because there is

no unique relationship between price and quantity supplied.

Price discrimination occurs when a given product is sold at more than one price and the price differences are

not based on cost differences

Technological progress and dynamic efficiency may occur in some monopolistic industries but

not in others

While research and technology may strengthen monopoly power

over time it is likely to destroy monopoly position.

Ideally, output should expand to a level where

price = marginal revenue = marginal cost, but this will occur only under pure competitive conditions where price = marginal revenue

The monopolist is a

price maker

In 2015 American Express was found guilty of unlawful restraint of trade because it

prohibited any merchant who had signed up to accept American Express credit cards from promoting rival credit cards to their customers.

Monopolists may use pricing or other strategic barriers such as

selective price-cutting and advertising.

Monopolies may be geographic

small town may have only one airline, bank, etc

Economies of scale may result in one or two firms operating in an industry experiencing lower ATC than many competitive firms. These economies of scale may be the result of

spreading large initial capital costs over a large number of units of output (natural monopoly) or, more recently, spreading product development costs over units of output, and a greater specialization of inputs.

The efficiency (or deadweight) loss is also reflected in the

sum of consumer and producer surplus equaling less than the maximum possible value

Some monopolies have shown little interest in

technological progress.

The firm controls output and price but is not free of market forces, since

the combination of output and price that can be sold depends on demand

Legal barriers to entry into a monopolistic industry also exist in

the form of patents and licenses.

When monopoly power is resulting in an adverse effect upon the economy

the government may choose to intervene on a case-by-case basis.

The explanation of why more than one firm would be inefficient involves the description of

the maze of pipes or wires that would result if there were competition among water companies, electric utility companies, etc.

A monopolist may or may not engage in nonprice competition depending on

the nature of its product

X inefficiency may occur in a monopoly since

there is no competitive pressure to produce at the minimum possible costs.

Public utilities are often natural monopolies because

they have economies of scale in the extreme case where one firm is most efficient in satisfying existing demand.

Economies of scale constitute one major barrier

this occurs where the lowest unit costs and, therefore, lowest unit prices for consumers depend on the existence of a small number of large firms or, in the case of a pure monopoly, only one firm

a monopolist may advertise

to increase demand

As long as demand is elastic

total revenue will rise when the monopoly lowers its price