曼昆《经济学原理》题目及课后答案答案ch15docx.docx

曼昆《经济学原理》题目及课后答案答案ch15docx.docx

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曼昆《经济学原理》题目及课后答案答案ch15docx

Chapter15Monopoly

WHAT'SNEW・NTHETHIRDEDEON:

Anewsummarytablecomparingperfectcompetitionandmonopolyhasbeenadded.ThereisalsoanewIntheNewsboxon"WhyPeoplePayMorethanDogs.”

LEARNINGOBJECTIVES:

Bytheendofthischapter,studentsshouldunderstand:

>whysomemarketshaveonlyoneseller.

>howamonopolydeterminesthequantitytoproduceandthepricetocharge.

>howthemonopoly'sdecisionsaffecteconomicwell-being.

>thevariouspublicpoliciesaimedatsolvingtheproblemofmonopoly.

>whymonopoliestrytochargedifferentpricestodifferentcustomers.

CONTEXTANDPURPOSE:

Chapter15isthethirdchapterinafive-chaptersequencedealingwithfirmbehaviorandtheorganizationofindustry.Chapter13developedthecostcurvesonwhichfirmbehaviorisbased.ThesecostcurveswereemployedinChapter14toshowhowacompetitivefirmrespondstochangesinmarketconditions.InChapter15,thesecostcurvesareagainemployed,thistimetoshowhowamonopolisticfirmchoosesthequantitytoproduceandthepricetocharge.Chapters16and17willaddressthedecisionsmadebyoligopolisticandmonopolisticallycompetitivefirms.

Amonopolististhesolesellerofaproductwithoutclosesubstitutes.Assuch,ithasmarketpowerbecauseitcaninfluencethepriceofitsoutput.Thatis,amonopolistisapricemakerasopposedtoapricetaker.ThepurposeofChapter15istoexaminetheproductionandpricingdecisionsofmonopolists,thesocialimplicationsoftheirmarketpower,andthewaysinwhichgovernmentsmightrespondtotheproblemscausedbymonopolists.

KEYPOINTS:

1.Amonopolyisafirmthatisthesolesellerinitsmarket.Amonopolyariseswhenasinglefirmownsakeyresource,whenthegovernmentgivesafirmtheexclusiverighttoproduceagood,orwhenasinglefirmcansupplytheentiremarketatasmallercostthanmanyfirmscould.

2.Becauseamonopolyisthesoleproducerinitsmarket,itfacesadownward-slopingdemandcurveforitsproduct.Whenamonopolyincreasesproductionbyoneunit,itcausesthepriceofitsgoodtofall,whichreducestheamountofrevenueearnedonallunitsproduced.Asaresult,amonopoly'smarginalrevenueisalwaysbelowthepriceofitsgood.

3.Likeacompetitivefirm,amonopolyfirmmaximizesprofitbyproducingthequantityatwhichmarginalrevenueequalsmarginalcost.Themonopolythenchoosesthepriceatwhichthatquantityisdemanded.Unlikeacompetitivefirm,amonopolyfirm'spriceexceedsitsmarginalrevenue,soitspriceexceedsmarginalcost.

4.Amonopolistsprofit-maximizinglevelofoutputisbelowthelevelthatmaximizesthesumofconsumerandproducersurplus.Thatis,whenthemonopolychargesapriceabovemarginalcost,someconsumerswhovaluethegoodmorethanitscostofproductiondonotbuyit.Asaresult,monopolycausesdeadweightlossessimilartothedeadweightlossescausedbytaxes.

5.Policymakerscanrespondtotheinefficiencyofmonopolybehaviorinfourways.Theycanusetheantitrustlawstotrytomaketheindustrymorecompetitive.Theycanregulatethepricesthatthemonopolycharges.Theycanturnthemonopolistintoagovernment-runenterprise.Or,ifthemarketfailureisdeemedsmallcomparedtotheinevitableimperfectionsofpolicies,theycandonothingatall.

6.Monopolistsoftencanraisetheirprofitsbychargingdifferentpricesforthesamegoodbasedonthebuyer'swillingnesstopay.Thispracticeofpricediscriminationcanraiseeconomicwelfarebygettingthegoodtosomeconsumerswhootherwisewouldnotbuyit.Intheextremecaseofperfectpricediscrimination,thedeadweightlossesofmonopolyarecompletelyeliminated.Moregenerally,whenpricediscriminationisimperfect,itcaneitherraiseorlowerwelfarecomparedtotheoutcomewithasinglemonopolyprice.

CHAPTEROUTLINE:

I.Acompetitivefirmisapricetaker;amonopolyfirmisapricemaker.

II.WhyMonopoliesArise

A.Definitionofmonopoly:

afirmthatisthesolesellerofaproductwithoutclosesubstitutes.

B.Thefundamentalcauseofmonopolyisbarrierstoentry.

1.MonopolyResources

a.Amonopolycouldhavesoleownershiporcontrolofakeyresourcethatisusedintheproductionofthegood.

b.CaseStudy:

TheDeBeersDiamondMonopoly—firmcontrolsabout80percentofthediamondsintheworld.

2.Government-CreatedMonopolies

a.Monopoliescanarisebecausethegovernmentgrantsonepersonoronefirmtheexclusiverighttosellsomegoodorservice.

b.Patentsareissuedbythegovernmenttogivefirmstheexclusiverighttoproduceaproductfor20years.

3.NaturalMonopolies

a.Definitionofnaturalmonopoly:

amonopolythatarisesbecauseasinglefirmcansupplyagoodorservicetoanentiremarketatasmallercostthancouldtwoormorefirms.

Figure1

b.Anaturalmonopolyoccurswhenthereareeconomiesofscale,implyingthataveragetotalcostfallsasthefirm*sscalebecomeslarger.

III.HowMonopoliesMakeProductionandPricingDecisions

A.MonopolyVersusCompetition

Figure2

1.Thekeydifferencebetweenacompetitivefirmandamonopolyisthemonopoly*sabilitytocontrolprice.

2.Thedemandcurvesthateachofthesetypesoffirmsfacesisdifferentaswell.

a.Acompetitivefirmfacesaperfectlyelasticdemandatthemarketprice.Thefirmcansellallthatitwantstoatthisprice.

b.Amonopolyfacesthemarketdemandcurvebecauseitistheonlysellerinthemarket.Ifamonopolywantstosellmoreoutput,itmustlowerthepriceofitsproduct.

B.AMonopoly*sRevenue

Table1

1.

Example:

soleproducerofwater.

Quantity

Price

TotalRevenue

AverageRevenue

MarginalRevenue

0

$11

$0

——

——

1

10

10

$10

$10

2

9

18

9

8

3

8

24

8

6

4

7

28

7

4

5

6

30

6

2

6

5

30

5

0

7

4

28

4

-2

8

3

24

3

-4

2.Amonopoly'smarginalrevenuewillalwaysbelessthanthepriceofthegood（otherthanatthefirstunitsold）.

a.Ifthemonopolistsellsonemoreunit,histotalrevenue（PHQ）willrisebecause6?

isgettinglarger.Thisiscalledtheoutputeffect.

b.Ifthemonopolistsellsonemoreunit,hemustlowerprice.Thismeansthathistotalrevenue（PHQ）willfallbecausePisgettingsmaller.Thisiscalledthepriceeffect.

ALTERNATIVECLASSROOMEXAMPLE:

TheWhatsaWidgetCompanyhasamonopolyinthesaleofwidgets.Thedemandthefirmfacescanbeshownbythefollowingschedule:

Quantity

Price

TotalRevenue

MarginalRevenue

0

$15

$0

—

1

14

14

$14

2

13

26

12

3

12

36

10

4

11

44

8

5

10

50

6

Studentsoftenhavetroublewiththis.Gothroughthetablemakingsurethattheyunderstandthecalculationofbothtotalrevenueandmarginalrevenueasoutputincreases.Emphasizethatthemonopolistissettingonepriceandstickingtoitratherthanhavingtheabilitytosetthepriceandloweritlittlebylittleashewishestosellmore.

c.

Notethat,foracompetitivefirm,thereisnopriceeffect.

Figure3

Price

3.Whengraphingthefirm*sdemandandmarginalrevenuecurve,theyalwaysstartatthesamepoint（becauseP=MRtorthefirstunitsold）;foreveryotherlevelofoutput,marginalrevenueliesbelowthedemandcurve（becauseMRvP）.

Atthispoint,youmaywanttodiscussthepriceelasticityofdemandagain.Remindstudentsthatdemandtendstobeelasticalongtheupperleft-handportionofthedemandcurve.Thus,adecreaseinpricecausestotalrevenuetoincrease（sothatmarginalrevenueisgreaterthanzero）.Furtherdownthedemandcurve,thedemandisinelastic.Inthisregion,adecreaseinpriceresultsinadropintotalrevenue（implyingthatmarginalrevenueisnowlessthanzero）.

C.ProfitMaximization

1.Themonopolist'sprofit-maximizingquantityofoutputoccurswheremarginalrevenueisequaltomarginalcost.

a.Ifthefirm'smarginalrevenueisgreaterthanmarginalcost,profitcanbeincreasedbyraisingthelevelofoutput.

b.Ifthefirm*smarginalrevenueislessthanmarginalcost,profitcanbeincreasedbyloweringthelevelofoutput.

2.EventhoughMR=MC\stheprofit-maximizingruleforbothcompetitivefirmsandmonopolies,thereisoneimportantdifference.

a.Incompetitivefirms,P=MR;attheprofit-maximizinglevelofoutput,P=MC.

b.Inamonopoly,P>MR：

attheprofit-maximizinglevelofoutput,P>MC.

3.Themonopolist'spriceisdeterminedbythedemandcurve（whichshowsusthewillingnesstopayofconsumers）.

ALTERNATIVECLASSROOMEXAMPLE:

ThecostsfortheWhatsaWidgetCompanycanberepresentedbythefollowingschedule:

Quantity

TotalCost

MarginalCost

0

$8

—

1

11

$3

2

16

5

3

26

10

4

39

13

5

57

18

Usingtheearlierinformationregardingthedemandforwidgets,havethestudentsfindtheprofit-maximizinglevelofoutput（wheremarginalrevenueisequaltomarginalcost）.Usetheinformationontotalrevenueandtotalcosttocalculatethelevelofmaximumprofit.

Afterhavingseenprofit-maximizationforaperfectlycompetitivefirm,studentsgenerallydonothavedifficultyunderstandingthatamonopolistwillmaximizeprofitwheremarginalrevenueequalsmarginalcost.However,studentsdohavetroublerememberingtousethedemandcurvetofindthemonopolist'sprice.Thus,becarefultoreviewthispointseveraltimes.

D.

FYI:

WhyaMonopolyDoesNotHaveaSupplyCurve

1.Asupplycurvetellsusthequantitythatafirmchoosestosupplyatanygivenprice.

2.Butamonopolyfirmisapricemaker;thefirmsetsthepriceatthesametimeitchoosesthequantitytosupply.

3.Itisthemarketdemandcurvethattellsushowmuchthemonopolistwillsupplybecausetheshapeofthedemandcurvedeterminestheshapeofthemarginalrevenuecurve（whichinturndeterminestheprofit-maximizinglev