By : Michelle Au Yeung 7A ( 12 )
Defining PURE MONOPOLY
The MR curve and elasticity
Short-run equilibrium :Total approach
Short-run equilibrium : Marginal approach
Long-run equilibrium
Regulation : Price Control
Regulation : Lump-Sum Tax
Regulation : Per-Unit Tax
Price Discrimination
What is Pure Monopoly ?
It is the form of market organization in which
there is a single firm selling a commodity with no close
substitutes ,
it is facing the negatively sloped industry demand
curve ,
It must lower its price to raise quantity
transacted ,
MR AVC.
P($). Q TR MR STC SMC SAC P TP
($) ($) ($) ($) ($) ($) ($)
8.00 0 0 6 -6.00
7.00 1 7.00 7 8 2 8.00 -1.00 -1.00
6.00 2 12.0 5 9 1 4.50 1.50 3.00
5.00 3 15.0 3 12 3 4.00 1.00 3.00
4.00 4 16.0 1 20 8 5.00 -1.0 -4.00
3.00 5 15.0 -1 35 15 7.00 -4.00 -20.0
SMC
$
SAC
5.5
D
MR
2.5 Q
Long – run equilibrium under PURE MONOPOLY
In the long run , a monopolist will remain in business only if he or she
can make a profit by producing the best level of output with the
most appropriate scale of plant . The best level of output in the long
run is given by the point where the LMC curve intersects the
MR curve is tangent to the LAC curve at the best level of
output .
REGULATION OF MONOPOLY : PRICE CONTROL
By setting a maximum price at the level where the
SMC curve cuts the D curve , the government can
include the monopolist to increase output to the level
the industry would have produced if organized along
perfectly competitive lines . This also reduces the
monopolist’s profits.
$ SMC
SAC
D
MR
Q
REGULATION OF MONOPOLY: LUMP-SUM TAX
By imposing a lump-sum tax , the
government can reduce or even eliminate
the monopolist’s profits without
affecting either the commodity price or
output .
$ SMC
SAC’
SAC
D
MR
Q
Q STC($) SMC($) SAC($) STC’($) SAC’($)
0 6 0 0 9.75 0
1 8 2 8 11.75 11.75
2 9 1 4.5 12.75 6.38
3 12 3 4 15.75 5.25
4 20 8 5 23.75 5.94
Regulation of monopoly : per-unit tax
The government can also reduce the monopolist’s profit by imposing a
per-unit tax . However , in this case the monopolist will be able
to shift part of the burden of the per-unit tax to
consumers, in the form of a higher price and a smaller output
of the commodity.
Q STC($) SMC($) SAC($) STC($)’ SMC’( SAC’($)
$)
1 8 0 8 10 0 10
2 9 1 4.5 13 3 6.5
3 12 3 4 18 5 6
4 20 8 5 28 10 7
$ SM
C’ SAC’
SMC
SAC
D
MR
Q
Price Discrimination
Monopolists can increase their TR and profits
for a given level of output by practicing
price discrimination . One form of price
discrimination occurs when the monopolist
charges different prices for the same commodity in
different markets in such a way that the last
unit of the commodity sold in each market
gives the same MR . This is often referred
to as third-degree price discrimination .