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DPB 10013 MICROECONOMICS (MONOPOLY)

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Suzana Ithnain
Suzana Ithnain

The document discusses monopoly in the short run. It defines monopoly as a market with a single seller and no substitutes for the good. It notes key characteristics of monopoly include: one firm controls the industry; goods have no substitutes; there is no freedom of entry or exit; and the firm determines price. The document discusses how a monopoly faces a downward sloping demand curve and can influence price or quantity but not both. It provides examples of how to calculate total revenue, average revenue and marginal revenue from demand. It also discusses the relationships between demand, marginal revenue, and average revenue curves. Equilibrium for the monopoly occurs where marginal revenue equals marginal cost, and it can result in super normal profit, normal profit, losses or

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MonopolyMonopoly Short RunShort Run
Monopoly Short RunMonopoly Short Run Definition A market structure where there is only a single vendor that sells a homogeneous product that has no successor and there is almost restrictions for inclusion in the industry
Monopoly Short RunMonopoly Short Run Characteristic 1. One industry 5. No advertisement 2. No substitute goods 3. No freedom to entry and exit 4. Price determinants
Monopoly Short RunMonopoly Short Run Characteristic of monopoly 1.Industry consists of a monopoly firm. There is only one vendor who sells the goods in respect of which it can not be obtained elsewhere. Buyers have no choice and can only obtain goods or services from monopoly firms only.
Monopoly Short RunMonopoly Short Run 2. Goods which have not produced a replacement. Goods produced by the monopoly firm can not be replaced in proper from other firms, especially in terms of usefulness. For example water and electricity do not have a convenient substitute.
Monopoly Short RunMonopoly Short Run 3. There is no freedom in and out in monopoly industries. There is no freedom of entry and exit into the industry monopoly because there are barriers to entry that nature protection law, the financial needs of large, high technology needs and others that allow a firm has monopoly power.
Monopoly Short RunMonopoly Short Run 4. Industry is a monopoly price determinants. Because there is no competition from other firms, the monopoly firm can determine the desired price level. Curve demand the monopoly slope down from left to right shows a monopoly firm can determine the price level to restrict output.
Monopoly Short RunMonopoly Short Run 5. Lack of use advertisement. As the industry consists of a monopoly firm and goods produced do not have nearly the successor, then the use of ads is not required to develop sales and advertising are usually made to maintain good relations with customers
DEMAND CURVE, REVENUE CURVE ANDDEMAND CURVE, REVENUE CURVE AND MARKET PRICESMARKET PRICES Because the goods produced by the monopoly firm that is no successor, then curved monopoly demand is not elastic and it slope down from left to right. Curve requests that are not flexible causes the monopoly firm can raise price by reducing output and increasing output but with lower prices. A monopoly can choose either to influence the price level and let the user determine the level of product or product affect the level by letting users determine the price level. Therefore, it can be said monopoly can not influence price and quantity of product in the same time.
DEMAND CURVE, REVENUE CURVE ANDDEMAND CURVE, REVENUE CURVE AND MARKET PRICESMARKET PRICES Total Revenue, Average Revenue and Marginal Revenue Example 1; Output (unit) Price (RM) Total Revenue (TR) Average Revenue (AR) Marginal Revenue (MR) 1 5 5 5 5 2 4 8 4 3 3 3 9 3 1 4 2 8 2 -1 5 1 5 1 -3
DEMAND CURVE, REVENUE CURVE ANDDEMAND CURVE, REVENUE CURVE AND MARKET PRICESMARKET PRICES Total Revenue/Total Cost A 9 TR Output (Q)0 3 Price L e > 1 e = 13 E e < 1 MR AR Output (Q)0 3 6 Figure 1.0 Figure 1.1
DEMAND CURVE, REVENUE CURVE ANDDEMAND CURVE, REVENUE CURVE AND MARKET PRICESMARKET PRICES Figure 1.1 shows the number of curved results. Total revenue increased to the maximum point at point A with a total revenue of RM9 product with 3 units. After the product units to-3, causing additional product total revenue decreased. Next curved total revenue will be inverted U-shaped.
DEMAND CURVE, REVENUE CURVE ANDDEMAND CURVE, REVENUE CURVE AND MARKET PRICESMARKET PRICES Figure 1.2 shows curved marginal revenue (MR) and curved average revenue (AR). Average Revenue Curve (AR) is equal to the curved demand firm monopoly where it slope down from left to right. But the value of elasticity is different along the curved request. Curve Marginal Revenue (MR) is curved under the average revenue (AR) because the value of marginal revenue is always lower than the prices at various levels of product.
DEMAND CURVE, REVENUE CURVE ANDDEMAND CURVE, REVENUE CURVE AND MARKET PRICESMARKET PRICES Formula : TR = P X Q Eg : Total revenue for output 3 = Harga X Kuantiti Keluaran = RM 3 X 3 . = RM 9 1. Total Revenue 2. Average Revenue Eg : Average revenue for output 3 =RM9/3 = RM3 AR = TR / Q
DEMAND CURVE, REVENUE CURVE ANDDEMAND CURVE, REVENUE CURVE AND MARKET PRICESMARKET PRICES MR = TR Q 3. Total Revenue Formula; Eg : Marginal reneue for output 3 = RM 9 - RM 8 3 - 2 = RM 1
R & R
EQUILIBRIUM FIRM IN THE SHORTEQUILIBRIUM FIRM IN THE SHORT TERM AND LONG-TERMTERM AND LONG-TERM Short Term Equilibrium monopoly achieved when Marginal Cost (MC) = Marginal Revenue (MR) In the short term, the monopoly that is in equilibrium can be obtained a) Profit abnormal / super normal b) a normal profit c) subnormal profit / loss d) Close firms
EQUILIBRIUM FIRM IN THE SHORTEQUILIBRIUM FIRM IN THE SHORT TERM AND LONG-TERMTERM AND LONG-TERM 1.SUPER NORMAL PROFIT PRICE , COST, REVENEU MC AC 10 A 8 B E O 100 MR AR OUTPUT (Q) AVC
EQUILIBRIUM FIRM IN THE SHORT TERMEQUILIBRIUM FIRM IN THE SHORT TERM AND LONG-TERMAND LONG-TERM Conclusion; 1.Equilibrium Conditions MC = MR 2. AC < AR 3.AVC < AR 4.TR = AR X Q ( 10 X 100 = 1000 ) 5.TC = AC X Q ( 8 X 100 = 800 ) PROFIT = TR TC ( 1000 800 = 200) 6. TR > TC = 200 (SUPER NORMAL PROFIT)
EQUILIBRIUM FIRM IN THE SHORTEQUILIBRIUM FIRM IN THE SHORT TERM AND LONG-TERMTERM AND LONG-TERM 2.NORMAL PROFIT PRICE, COST, REVENUE MC AC 15 A E MR AR 0 100 OUTPUT (Q) AVC
EQUILIBRIUM PERFECT COMPETITION INEQUILIBRIUM PERFECT COMPETITION IN SHORT RUNSHORT RUN Conclusion; 1.Equilibrium Conditions MC = MR 2. AC = AR 3.AVC < AR 4.TR = AR X Q ( 15 X 100 = 1500 ) 5.TC = AC X Q ( 15 X 100 = 1500 ) PROFIT = TR TC (1500 1500 = 0) 6. TR = TC = 1500 (NORMAL PROFIT / BREAK EVEN POINT)
EQUILIBRIUM FIRM IN THE SHORTEQUILIBRIUM FIRM IN THE SHORT TERM AND LONG-TERMTERM AND LONG-TERM 3.LOSS PRICE, COST, REVENUE AC A 15 MC 10 B O 100 MR AR OUTPUT (Q) E AVC
EQUILIBRIUM FIRM IN THE SHORT TERMEQUILIBRIUM FIRM IN THE SHORT TERM AND LONG-TERMAND LONG-TERM Conclusion; 1.Equilibrium Conditions MC = MR 2. AC > AR 3.AVC < AR 4.TR = AR X Q ( 10 X 100 = 1000 ) 5.TC = AC X Q ( 15 X 100 = 1500 ) PROFIT = TR TC (1000 1500 = - 500) 6. TR - TC = -500 (LOSS)
EQUILIBRIUM FIRM IN THE SHORTEQUILIBRIUM FIRM IN THE SHORT TERM AND LONG-TERMTERM AND LONG-TERM 4.CLOSED FIRM PRICE, COST, REVENEU MC AC AVC OUTPUT (Q) MR AR E 15 30 B C 0 100
EQUILIBRIUM FIRM IN THE SHORT TERMEQUILIBRIUM FIRM IN THE SHORT TERM AND LONG-TERMAND LONG-TERM Conclusion; 1.Equilibrium Conditions MC = MR 2. AC > AR 3.AVC > AR 4.TR = AR X Q ( 15 X 100 = 1500 ) 5.TC = AC X Q ( 30 X 100 = 3000 ) PROFIT = TR TC (1500 3000 = - 1500) 6. TR - TC = -1500 (LOSS/ CLOSED FIRM BECAUSE AVC > AR)
EQUILIBRIUM FIRM IN THE SHORTEQUILIBRIUM FIRM IN THE SHORT TERM AND LONG-TERMTERM AND LONG-TERM SUPER NORMAL PROFIT (LONG TERM) PRICE , COST, REVENEU LMC LAC 10 A 8 B E O 100 LMR LAR OUTPUT (Q) LAVC
EQUILIBRIUM FIRM IN THE SHORT TERMEQUILIBRIUM FIRM IN THE SHORT TERM AND LONG-TERMAND LONG-TERM Conclusion; 1.Equilibrium Conditions MC = MR 2. LAC <L AR 3.LAVC < LAR 4.TR = LAR X Q ( 10 X 100 = 1000 ) 5.TC = LAC X Q ( 8 X 100 = 800 ) PROFIT = TR TC ( 1000 800 = 200) 6. TR > TC = 200 (SUPER NORMAL PROFIT)
EXERCISEEXERCISE 1. The table below shown; 2. Calculate the TR, AR and MR. 3. Draw that curve. Output (Q) Price Output RM Total Reveneu RM Average Reveneu RM Marginal Reveneu RM 1 30 2 50 3 70 4 90 5 110 6 130 7 150
2. Based on the table below: Calculate TR, AR, MR, AC,AVC,MC , P/L Draw that curve. Output (Q) P TR AR MR TC AC AVC MC P/L 0 - - - - 200 - - - - 1 50 280 2 75 300 3 100 330 4 125 375 5 150 435 6 175 510 7 200 630 8 225 760 9 250 910
EXERCISEEXERCISE 1. When firms are in equilibrium, the following will happen: a) b) Prices of goods = AR 2.Demand curve faced by firms is less than a monopoly. This means that marginal revenue is the result of both average and evaluation of ___________________marginal and average revenue______________ when the firm increases output. 3. Output of firms deemed to be issued with a monopoly is not an efficient way that does not produce output because average cost is not the _________________________ or economic resources are not distributed efficiently regarded as not the same as _________________ ______________________

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DPB 10013 MICROECONOMICS (MONOPOLY)

  • 2. Monopoly Short RunMonopoly Short Run Definition A market structure where there is only a single vendor that sells a homogeneous product that has no successor and there is almost restrictions for inclusion in the industry
  • 3. Monopoly Short RunMonopoly Short Run Characteristic 1. One industry 5. No advertisement 2. No substitute goods 3. No freedom to entry and exit 4. Price determinants
  • 4. Monopoly Short RunMonopoly Short Run Characteristic of monopoly 1.Industry consists of a monopoly firm. There is only one vendor who sells the goods in respect of which it can not be obtained elsewhere. Buyers have no choice and can only obtain goods or services from monopoly firms only.
  • 5. Monopoly Short RunMonopoly Short Run 2. Goods which have not produced a replacement. Goods produced by the monopoly firm can not be replaced in proper from other firms, especially in terms of usefulness. For example water and electricity do not have a convenient substitute.
  • 6. Monopoly Short RunMonopoly Short Run 3. There is no freedom in and out in monopoly industries. There is no freedom of entry and exit into the industry monopoly because there are barriers to entry that nature protection law, the financial needs of large, high technology needs and others that allow a firm has monopoly power.
  • 7. Monopoly Short RunMonopoly Short Run 4. Industry is a monopoly price determinants. Because there is no competition from other firms, the monopoly firm can determine the desired price level. Curve demand the monopoly slope down from left to right shows a monopoly firm can determine the price level to restrict output.
  • 8. Monopoly Short RunMonopoly Short Run 5. Lack of use advertisement. As the industry consists of a monopoly firm and goods produced do not have nearly the successor, then the use of ads is not required to develop sales and advertising are usually made to maintain good relations with customers
  • 9. DEMAND CURVE, REVENUE CURVE ANDDEMAND CURVE, REVENUE CURVE AND MARKET PRICESMARKET PRICES Because the goods produced by the monopoly firm that is no successor, then curved monopoly demand is not elastic and it slope down from left to right. Curve requests that are not flexible causes the monopoly firm can raise price by reducing output and increasing output but with lower prices. A monopoly can choose either to influence the price level and let the user determine the level of product or product affect the level by letting users determine the price level. Therefore, it can be said monopoly can not influence price and quantity of product in the same time.
  • 10. DEMAND CURVE, REVENUE CURVE ANDDEMAND CURVE, REVENUE CURVE AND MARKET PRICESMARKET PRICES Total Revenue, Average Revenue and Marginal Revenue Example 1; Output (unit) Price (RM) Total Revenue (TR) Average Revenue (AR) Marginal Revenue (MR) 1 5 5 5 5 2 4 8 4 3 3 3 9 3 1 4 2 8 2 -1 5 1 5 1 -3
  • 11. DEMAND CURVE, REVENUE CURVE ANDDEMAND CURVE, REVENUE CURVE AND MARKET PRICESMARKET PRICES Total Revenue/Total Cost A 9 TR Output (Q)0 3 Price L e > 1 e = 13 E e < 1 MR AR Output (Q)0 3 6 Figure 1.0 Figure 1.1
  • 12. DEMAND CURVE, REVENUE CURVE ANDDEMAND CURVE, REVENUE CURVE AND MARKET PRICESMARKET PRICES Figure 1.1 shows the number of curved results. Total revenue increased to the maximum point at point A with a total revenue of RM9 product with 3 units. After the product units to-3, causing additional product total revenue decreased. Next curved total revenue will be inverted U-shaped.
  • 13. DEMAND CURVE, REVENUE CURVE ANDDEMAND CURVE, REVENUE CURVE AND MARKET PRICESMARKET PRICES Figure 1.2 shows curved marginal revenue (MR) and curved average revenue (AR). Average Revenue Curve (AR) is equal to the curved demand firm monopoly where it slope down from left to right. But the value of elasticity is different along the curved request. Curve Marginal Revenue (MR) is curved under the average revenue (AR) because the value of marginal revenue is always lower than the prices at various levels of product.
  • 14. DEMAND CURVE, REVENUE CURVE ANDDEMAND CURVE, REVENUE CURVE AND MARKET PRICESMARKET PRICES Formula : TR = P X Q Eg : Total revenue for output 3 = Harga X Kuantiti Keluaran = RM 3 X 3 . = RM 9 1. Total Revenue 2. Average Revenue Eg : Average revenue for output 3 =RM9/3 = RM3 AR = TR / Q
  • 15. DEMAND CURVE, REVENUE CURVE ANDDEMAND CURVE, REVENUE CURVE AND MARKET PRICESMARKET PRICES MR = TR Q 3. Total Revenue Formula; Eg : Marginal reneue for output 3 = RM 9 - RM 8 3 - 2 = RM 1
  • 16. R & R
  • 17. EQUILIBRIUM FIRM IN THE SHORTEQUILIBRIUM FIRM IN THE SHORT TERM AND LONG-TERMTERM AND LONG-TERM Short Term Equilibrium monopoly achieved when Marginal Cost (MC) = Marginal Revenue (MR) In the short term, the monopoly that is in equilibrium can be obtained a) Profit abnormal / super normal b) a normal profit c) subnormal profit / loss d) Close firms
  • 18. EQUILIBRIUM FIRM IN THE SHORTEQUILIBRIUM FIRM IN THE SHORT TERM AND LONG-TERMTERM AND LONG-TERM 1.SUPER NORMAL PROFIT PRICE , COST, REVENEU MC AC 10 A 8 B E O 100 MR AR OUTPUT (Q) AVC
  • 19. EQUILIBRIUM FIRM IN THE SHORT TERMEQUILIBRIUM FIRM IN THE SHORT TERM AND LONG-TERMAND LONG-TERM Conclusion; 1.Equilibrium Conditions MC = MR 2. AC < AR 3.AVC < AR 4.TR = AR X Q ( 10 X 100 = 1000 ) 5.TC = AC X Q ( 8 X 100 = 800 ) PROFIT = TR TC ( 1000 800 = 200) 6. TR > TC = 200 (SUPER NORMAL PROFIT)
  • 20. EQUILIBRIUM FIRM IN THE SHORTEQUILIBRIUM FIRM IN THE SHORT TERM AND LONG-TERMTERM AND LONG-TERM 2.NORMAL PROFIT PRICE, COST, REVENUE MC AC 15 A E MR AR 0 100 OUTPUT (Q) AVC
  • 21. EQUILIBRIUM PERFECT COMPETITION INEQUILIBRIUM PERFECT COMPETITION IN SHORT RUNSHORT RUN Conclusion; 1.Equilibrium Conditions MC = MR 2. AC = AR 3.AVC < AR 4.TR = AR X Q ( 15 X 100 = 1500 ) 5.TC = AC X Q ( 15 X 100 = 1500 ) PROFIT = TR TC (1500 1500 = 0) 6. TR = TC = 1500 (NORMAL PROFIT / BREAK EVEN POINT)
  • 22. EQUILIBRIUM FIRM IN THE SHORTEQUILIBRIUM FIRM IN THE SHORT TERM AND LONG-TERMTERM AND LONG-TERM 3.LOSS PRICE, COST, REVENUE AC A 15 MC 10 B O 100 MR AR OUTPUT (Q) E AVC
  • 23. EQUILIBRIUM FIRM IN THE SHORT TERMEQUILIBRIUM FIRM IN THE SHORT TERM AND LONG-TERMAND LONG-TERM Conclusion; 1.Equilibrium Conditions MC = MR 2. AC > AR 3.AVC < AR 4.TR = AR X Q ( 10 X 100 = 1000 ) 5.TC = AC X Q ( 15 X 100 = 1500 ) PROFIT = TR TC (1000 1500 = - 500) 6. TR - TC = -500 (LOSS)
  • 24. EQUILIBRIUM FIRM IN THE SHORTEQUILIBRIUM FIRM IN THE SHORT TERM AND LONG-TERMTERM AND LONG-TERM 4.CLOSED FIRM PRICE, COST, REVENEU MC AC AVC OUTPUT (Q) MR AR E 15 30 B C 0 100
  • 25. EQUILIBRIUM FIRM IN THE SHORT TERMEQUILIBRIUM FIRM IN THE SHORT TERM AND LONG-TERMAND LONG-TERM Conclusion; 1.Equilibrium Conditions MC = MR 2. AC > AR 3.AVC > AR 4.TR = AR X Q ( 15 X 100 = 1500 ) 5.TC = AC X Q ( 30 X 100 = 3000 ) PROFIT = TR TC (1500 3000 = - 1500) 6. TR - TC = -1500 (LOSS/ CLOSED FIRM BECAUSE AVC > AR)
  • 26. EQUILIBRIUM FIRM IN THE SHORTEQUILIBRIUM FIRM IN THE SHORT TERM AND LONG-TERMTERM AND LONG-TERM SUPER NORMAL PROFIT (LONG TERM) PRICE , COST, REVENEU LMC LAC 10 A 8 B E O 100 LMR LAR OUTPUT (Q) LAVC
  • 27. EQUILIBRIUM FIRM IN THE SHORT TERMEQUILIBRIUM FIRM IN THE SHORT TERM AND LONG-TERMAND LONG-TERM Conclusion; 1.Equilibrium Conditions MC = MR 2. LAC <L AR 3.LAVC < LAR 4.TR = LAR X Q ( 10 X 100 = 1000 ) 5.TC = LAC X Q ( 8 X 100 = 800 ) PROFIT = TR TC ( 1000 800 = 200) 6. TR > TC = 200 (SUPER NORMAL PROFIT)
  • 28. EXERCISEEXERCISE 1. The table below shown; 2. Calculate the TR, AR and MR. 3. Draw that curve. Output (Q) Price Output RM Total Reveneu RM Average Reveneu RM Marginal Reveneu RM 1 30 2 50 3 70 4 90 5 110 6 130 7 150
  • 29. 2. Based on the table below: Calculate TR, AR, MR, AC,AVC,MC , P/L Draw that curve. Output (Q) P TR AR MR TC AC AVC MC P/L 0 - - - - 200 - - - - 1 50 280 2 75 300 3 100 330 4 125 375 5 150 435 6 175 510 7 200 630 8 225 760 9 250 910
  • 30. EXERCISEEXERCISE 1. When firms are in equilibrium, the following will happen: a) b) Prices of goods = AR 2.Demand curve faced by firms is less than a monopoly. This means that marginal revenue is the result of both average and evaluation of ___________________marginal and average revenue______________ when the firm increases output. 3. Output of firms deemed to be issued with a monopoly is not an efficient way that does not produce output because average cost is not the _________________________ or economic resources are not distributed efficiently regarded as not the same as _________________ ______________________