Monopoly versus Competition CS P** DWL MC P* D MR Q** Q* Lectures in Microeconomics-Charles W. Upton Comparison to Competitive Equilibrium • A consumer sets MRS=P Monopoly versus Competition Comparison to Competitive Equilibrium • A consumer sets MRS=P • A competitive firm sets MC = P Monopoly versus Competition Comparison to Competitive Equilibrium • A consumer sets MRS=P • A competitive firm sets MC = P • Of course, MC = MRT Monopoly versus Competition Comparison to Competitive Equilibrium MRS = P Monopoly versus Competition Comparison to Competitive Equilibrium MRS = P = MC Monopoly versus Competition Comparison to Competitive Equilibrium MC = MRT MRS = P = MC = MRT Monopoly versus Competition Comparison to Competitive Equilibrium MC = MRT The basic requirement economic efficiency. MRS = P =forMC = MRT The rate at which the consumer is willing to substitute apples for bananas (say) is just equal to the rate at which we can transform apples into bananas. Monopoly versus Competition How the Monopolist Does It MRS=P MR=MC Monopoly versus Competition How the Monopolist Does It MRS=P MR=MC P > MR P> MC Monopoly versus Competition How the Monopolist Does It MRS=P MR=MC P > MR P> MC MC=MRT MRS>MRT Monopoly versus Competition How the Monopolist Does It The monopolist MRS=Pviolates the fundamental requirement for economic efficiency.MR=MC Price is above Marginal Cost P > MR (MRT) P> MC MC=MRT MRS>MRT Monopoly versus Competition A Graphical Presentation MC P* D Q* Monopoly versus Competition A Graphical Presentation CS MC P* D Q* Monopoly versus Competition A Graphical Presentation P** MC P* MR Monopoly versus Competition Q** Q* D A Graphical Presentation CS P** MC P* MR Monopoly versus Competition Q** Q* D A Graphical Presentation CS P** MC P* MR Monopoly versus Competition Q** Q* D A Graphical Presentation CS P** DWL MC P* MR Monopoly versus Competition Q** Q* D A Graphical Presentation The social cost of a monopoly: the Dead Weight Loss CS P** DWL MC P* MR Monopoly versus Competition Q** Q* D A Graphical Presentation Suppose we could run the The social cost of a monopolyCS without any monopoly: the Dead Dead Weight Loss? P** Weight Loss Would monopolies then be objectionable?DWL MC P* D MR Monopoly versus Competition Q** Q* End ©2004 Charles W. Upton Monopoly versus Competition
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