Please enable JavaScript.
Coggle requires JavaScript to display documents.
Monopoly - Coggle Diagram
Monopoly
-
-
-
Output Decision
-
Shrinking from Q to Q1 would reduce profit because the extra revenue that could be earned from producing and selling the units between Q1 and Q exceeds the cost of producing them
Expanding output from Q* to Q2 would reduce profit because the additional cost would exceed the additional revenue.
Pricing in monopoly
-
When demand is very elastic, there is little benefit to being a monopolist.
If marginal cost is zero, maximizing profit is equivalent to maximizing revenue, and revenue is maximized when Ed = -1.
A monopolist charges a price that exceeds marginal cost, but by an amount that depends inversely on the elasticity of demand.
Shifts in Demand
Depending on how demand shifts, monopolist might supply several different quantities at the same price, or the same quantity at different prices.
-
Monopoly Power
Definition
-
The amount by which price exceeds marginal cost depends inversely on the elasticity of demand facing the firm
The less elastic the demand curve is, the more monopoly power a firm has
Measuring monopoly power
-
The larger is L, the greater is the degree of monopoly power.
-
Price markup
If the firm’s demand is elastic, the markup is small and the firm has little monopoly power.
If the firm’s demand is relatively inelastic, the markup is large and the firm has monopoly power.
Price Discrimination
Definition
-
Raising the price => losing some customers, selling less, and earning smaller profits.
-
-
-
Peak-Load Pricing
Practice of charging higher prices during peak periods when capacity constraints cause marginal costs to be high.
