IMPERFECT COMPETATION AND MONOPOLY ECONOMICS Paul A Samuelson and William D.Nordhaus 18th Edition, McGraw-Hill, 2005, Chapter Basic Microeconomics/PAS&WDR/SamHa rtojo/2005 Part : Microeconomics: Supply, Demand and Product Markets CHAPTER : IMPERFECT COMPETATION AND MONOPOLY   Imperfect Competation prevails in an industry whenever individual sellers have some measure of control over the price of their output Varieties of Imperfect Competation  Monopoly  Oligopoly  Monopolistic Competation Basic Microeconomics/PAS&WDR/SamHa rtojo/2005 Part : Microeconomics : Supply, Demand and Product Markets CHAPTER : IMPERFECT COMPETATION AND MONOPOLY Marginal Revenue  is the change in revenue that is generated by an additional unit of sales Q Price TR MR 160 320 xxx 140 420 100 120 480 60 100 500 20 80 480 -20 60 420 -60 Basic Microeconomics/PAS&WDR/SamHa rtojo/2005 Part : Microeconomics : Supply, Demand and Product Markets CHAPTER : IMPERFECT COMPETATION AND MONOPOLY Marginal Revenue  Graph Price Price Ed = Ed >  MR > Ed =  MR = Ed < Ed > Ed <  MR < MR = AR TR Quantity Basic Microeconomics/PAS&WDR/SamHa rtojo/2005 MR Quantity Part : Microeconomics : Suplly, Demand and Product Markets CHAPTER : IMPERFECT COMPETATION AND MONOPOLY PROFIT – MAXIMIZING CONDITION  Maximum profit will occur when output is at that level where the firm’s marginal revenue is equal to its marginal cost  Marginal Revenue = Marginal Cost MR = MC  dTR/dQ = dTC/dQ Basic Microeconomics/PAS&WDR/SamHa rtojo/2005 Part : Microeconomics: Supply, Demand and Product Markets CHAPTER : IMPERFECT COMPETATION AND MONOPOLY SUMMARY OF FIRM’S MAXIMUM PROFIT Q Price TR TC Total Profit MR MC 200 145 -145 xxx xxx 180 180 175 180 30 160 320 200 120 140 25 140 420 220 200 100 20 120 480 250 230 60 30 40 40 100 500 300 200 20 50 80 480 370 110 -20 70 60 420 460 -40 -60 90 40 320 570 -250 -100 100 Basic Microeconomics/PAS&WDR/SamHa rtojo/2005 MR = MC MR = MC MR = MC Monopolistic Competitor Making a Profit in the Short Run 24 MC 22 20 18 Price is $15 ATC 16 14 ATC is $12.10 D 12 MR 10 Total Profit=(Price-ATC) X Output =($15-$12.10) X 60 =($2.90) X 60 = $174 0 10 20 30 40 50 60 70 80 90 100 120 140 160 Output Output is 60 Copyright 2002 by The McGraw-Hill Companies, Inc All rights reserved 24-6 Monopolistic Competitor Taking a Loss in the Short Run 24 MC 22 20 18 ATC 16 14 ATC is $12.80 Price is $11 12 10 Total Profit=(Price-ATC) X Output =($11-$12.80) X 42 =(-$1.80) X 42 D MR = -$75.60 0 10 20 30 40 50 60 70 80 90 100 120 140 160 Output Output is 42 Copyright 2002 by The McGraw-Hill Companies, Inc All rights reserved 24-7 Monopolistic Competitor Breaking Even in the Long Run 24 MC 22 20 18 At the output level associated with MC=MR, the ATC curve is tangent to the demand curve ATC 16 14 12 10 D MR 0 10 20 30 40 50 60 70 80 90 100 120 140 160 Output Output is 40 Copyright 2002 by The McGraw-Hill Companies, Inc All rights reserved 24-8 Part : Microeconomics: Supply, Demand and Product Markets CHAPTER : IMPERFECT COMPETATION AND MONOPOLY PROFIT MAXIMIZATION : Price MC P** AC AC AR MR Q** Basic Microeconomics/PAS&WDR/SamHa rtojo/2005 Quantity 10 Part : Microeconomics: Supply, Demand and Product Markets CHAPTER : IMPERFECT COMPETATION AND MONOPOLY PROFIT MAXIMIZING : GRAPH TR, TC AC TR Q** Quantity Basic Microeconomics/PAS&WDR/SamHa rtojo/2005 11 Q and D Chapter due-date : Thank You Basic Microeconomics/PAS&WDR/SamHa rtojo/2005 12 ...Part : Microeconomics: Supply, Demand and Product Markets CHAPTER : IMPERFECT COMPETATION AND MONOPOLY   Imperfect Competation prevails in an industry whenever individual... of Imperfect Competation  Monopoly  Oligopoly  Monopolistic Competation Basic Microeconomics/PAS&WDR/SamHa rtojo/2005 Part : Microeconomics : Supply, Demand and Product Markets CHAPTER : IMPERFECT. .. Supply, Demand and Product Markets CHAPTER : IMPERFECT COMPETATION AND MONOPOLY PROFIT MAXIMIZING : GRAPH TR, TC AC TR Q** Quantity Basic Microeconomics/PAS&WDR/SamHa rtojo/2005 11 Q and D Chapter