CHAPTER 9 IMPERFECT COMPETATION AND MONO

Basic Microeconomics/PAS&WDR/SamHa IMPERFECT COMPETATION AND MONOPOLY ECONOMICS Paul A.. Samuelson and William D.Nordhaus Chapter 9... Basic Microeconomics/PAS&WDR/SamHa Part 2 : Microec

Basic Microeconomics/PAS&WDR/SamHa

IMPERFECT COMPETATION AND MONOPOLY

ECONOMICS

Paul A Samuelson and William D.Nordhaus

Chapter 9

Basic Microeconomics/PAS&WDR/SamHa

Part 2 :

Microeconomics: Supply, Demand and Product Markets

CHAPTER 9 : 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

Part 2 :

Microeconomics : Supply, Demand and Product Markets

CHAPTER 9 : IMPERFECT COMPETATION AND MONOPOLY

Marginal Revenue

 is the change in revenue that is generated by an

additional unit of sales.

Basic Microeconomics/PAS&WDR/SamHa

Part 2 :

Microeconomics : Supply, Demand and Product Markets

CHAPTER 9 : IMPERFECT COMPETATION AND MONOPOLY

Marginal Revenue  Graph

Ed = 1

Ed > 1

Ed < 1

MR

Quantity Quantity

Price Price

Ed = 1  MR = 0

Ed > 1  MR > 0

Ed < 1  MR < 0

Basic Microeconomics/PAS&WDR/SamHa

Part 2 :

Microeconomics : Suplly, Demand and Product Markets

CHAPTER 9 : 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

Part 2 :

Microeconomics: Supply, Demand and Product Markets

CHAPTER 9 : IMPERFECT COMPETATION AND MONOPOLY

SUMMARY OF FIRM’S MAXIMUM PROFIT

Q Price TR TC Total

Profit

0 200 0 145 -145 xxx xxx

1 180 180 175 5 180 30

2 160 320 200 120 140 25

3 140 420 220 200 100 20

4 120 480 250 230 60 30

5 100 500 300 200 20 50

6 80 480 370 110 -20 70

7 60 420 460 -40 -60 90

8 40 320 570 -250 -100 100

40 40 MR = MC

MR = MC

MR = MC

Copyright 2002 by The McGraw-Hill Companies, Inc All rights reserved.

Monopolistic Competitor Making a Profit in the

Short Run

Output

24 22 20 18 16 14 12 10 8 6 4 2 0

MC

ATC

D MR

Output is 60

Price is $15 ATC is $12.10

Total Profit=(Price-ATC) X Output

=($15-$12.10) X 60

=($2.90) X 60

= $174

Copyright 2002 by The McGraw-Hill Companies, Inc All rights reserved.

Monopolistic Competitor Taking a Loss in the

Short Run

Output

24 22 20 18 16 14 12 10 8 6 4 2 0

MC

ATC

D

MR

0 10 20 30 40 50 60 70 80 90 100 120 140 160

Output is 42

Price is $11 ATC is $12.80

Total Profit=(Price-ATC) X Output

=($11-$12.80) X 42

= (-$1.80) X 42

= -$75.60

Copyright 2002 by The McGraw-Hill Companies, Inc All rights reserved.

Monopolistic Competitor Breaking Even in the

Long Run

Output

24 22 20 18 16 14 12 10 8 6 4 2 0

MC

ATC

D

MR

Output is 40

At the output level

associated with MC=MR,

the ATC curve is tangent

to the demand curve

Basic Microeconomics/PAS&WDR/SamHa

Part 2 :

Microeconomics: Supply, Demand and Product Markets

CHAPTER 9 : IMPERFECT COMPETATION AND MONOPOLY

PROFIT MAXIMIZATION :

P**

Q**

AC

MC

AC

AR MR

Quantity Price

Basic Microeconomics/PAS&WDR/SamHa

Part 2 :

Microeconomics: Supply, Demand and Product Markets

CHAPTER 9 : IMPERFECT COMPETATION AND MONOPOLY

PROFIT MAXIMIZING : GRAPH

AC

TR

Q** Quantity

TR, TC

Basic Microeconomics/PAS&WDR/SamHa

Q and D Chapter 9

due-date :

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