Review, Perfect Competition Large number of buyers and sellers ■ Homogenous product a Free Entry and Exit Perfect information So Firm is a price taker a When the optimal output in the Long Run P= LMC= LAC=SAC=SMC=AR a Normal profits or zero economic profits in the long run
6 Review: Perfect Competition Large number of buyers and sellers Homogenous product Free Entry and Exit Perfect information So Firm is a price taker When the Optimal Output in the Long Run P = LMC = LAC=SAC=SMC=AR Normal profits or zero economic profits in the long run
Review: Perfect Competition Market Individual firm LMC LAC dE mr= p Q 0
Review: Perfect Competition Q q P P Market Individual Firm D S Q 0 P 0 P 0 d = MR = P q 0 LMC LAC
What is Monopoly(垄断) A Monopoly is a single supplier to a market This firm may choose produce at any point on the market demand curve price-maker Characteristics of Monopoly 1)One seller-many buyers 2)One product no good substitutes) 3) Barriers to entry(进入壁垒)
8 What is Monopoly (垄断 ) A Monopoly is a single supplier to a market. This firm may choose produce at any point on the market demand curve. Price-maker. Characteristics of Monopoly 1) One seller - many buyers 2) One product (no good substitutes) 3) Barriers to entry(进入壁垒 )
What causes monopolies? egal restrictions((法律限制)- copyrights& patents Control of critical resources(主要资源的控制) creates market power Government- authorized franchises(政府授予的 特权), such as provided to cable tv companies a Economies of size-Natural monopoly allow larger firms to produce at lower cost than smaller firms Such as railway, public goods Brand loyalty(对品牌忠诚) and extensive advertising makes entry highly expensive
9 What causes monopolies? Legal restrictions (法律限制 ) -- copyrights & patents. Control of critical resources（主要资源的控制） creates market power. Government-authoriz ed franchises（政府授予的 特权）, such as provided to cable TV companies. Economies of size —Natural Monopoly allow larger firms to produce at lower cost than smaller firms. Such as railway, public goods Brand loyalty （对品牌忠诚 ） and extensive advertising m akes entry highly expensive
Profit-Maximization in a Monopoly Suppose that a monopolist seeks to maximize its economic profit, Mar.I(q=p(ag-c(q) q>0 What output level q* maximizes profit? 10
10 Profit-Maximization in a Monopoly Suppose that a monopolist seeks to maximize its economic profit, What output level q* maximizes profit? 0 . ( ) ( ) ( ). q Max q p q q c q > Π = −