PURE COMPETITION AND MONOPOLY, MONOPOLISTICS AND OLIGOPOLY Pertemuan 19 Matakuliah: J0114-Teori...
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Transcript of PURE COMPETITION AND MONOPOLY, MONOPOLISTICS AND OLIGOPOLY Pertemuan 19 Matakuliah: J0114-Teori...
![Page 1: PURE COMPETITION AND MONOPOLY, MONOPOLISTICS AND OLIGOPOLY Pertemuan 19 Matakuliah: J0114-Teori Ekonomi Tahun: 2009.](https://reader036.fdocument.pub/reader036/viewer/2022070415/5697c0281a28abf838cd6ab5/html5/thumbnails/1.jpg)
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PURE COMPETITION AND MONOPOLY, MONOPOLISTICS
AND OLIGOPOLYPertemuan 19
Matakuliah : J0114-Teori EkonomiTahun : 2009
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Bina Nusantara University 3
Four Market Models
• Pure Competition• Pure Monopoly• Monopolistic Competition• Oligopoly
Market Structure Continum
PureCompetition
MonopolisticCompetition Oligopoly
PureMonopoly
Imperfect Competition
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Bina Nusantara University 4
Pure Competition• Very Large Numbers• Standardized Product• “Price Takers”• Free Entry and Exit• Perfectly Elastic Demand
– Average Revenue– Total Revenue– Marginal Revenue
Graphically…
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Bina Nusantara University 5
Firm’sDemandSchedule(AverageRevenue)
Firm’sRevenue
Data
Pure Competition
Pri
ce a
nd
Rev
enu
e
2 4 6 8 10 12
131
262
393
524
655
786
917
1048
$1179
Quantity Demanded (Sold)
D = MR = AR
TR
P QDTR MR
$131131131131131131131131131131131
0123456789
10
$0131262393524655786917
104811791310
$131131131131131131131131131131
]]]]]]]]]]
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Bina Nusantara University 6
Pure Monopoly
• Single Seller• No Close Substitutes• “Price Maker”• Blocked Entry• Nonprice Competition• Examples
– Regulated Monopolies– Near-Monopolies– Western Union-Frisbee-De Beers
• Dual Objectives of Study
O 22.1
Characteristics
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Bina Nusantara University 7
Pure Monopoly
• Economies of Scale• Legal Barriers to Entry
– Patents– Licenses
• Ownership or Control of Essential Resources• Pricing and Other Strategic Barriers to Entry
Barriers to Entry
• Monopoly Status is Secure• No Governmental Regulation• Firm is a Single-Price Monopolist (No Price
Discrimination)
Monopoly Demand
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Bina Nusantara University 80 1 2 3 4 5 6
$142
132
122
112
102
92
82
Price and Marginal RevenueMarginal Revenue is Less Than Price
D
• A Monopolist isSelling 3 Units at$142
• To Sell More (4), Price Must BeLowered to $132
• All Customers Must Pay the SamePrice
• TR Increases $132 Minus $30 (3x$10)
Gain = $132
Loss = $30
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Bina Nusantara University 9
Monopoly Revenue and CostsRevenue and Cost Data of a Pure Monopolist
(1)Quantity
Of Output
(2)Price
(AverageRevenue)
(3)Total
Revenue(1) X (2)
(4)MarginalRevenue
(5)Average
Total Cost
(6)Total Cost
(1) X (5)
(7)Marginal
Cost
(8)Profit (+)
or Loss (-)
0123456789
10
$172162152142132122112102928272
$0162304426528610672714736738720
$16214212210282624222
2-18
$190.00135.00113.33100.00
94.0091.6791.4393.7597.78
103.00
$100190270340400470550640750880
1030
$90807060708090
110130150
$-100-28+34+86
+128+140+122
+74-14
-142-310
Revenue Data Cost Data
]]]]]]]]]]
]]]]]]]]]]
Can you See Profit Maximization?
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Bina Nusantara University 10
$200
150
100
50
0
$750
500
250
0
2 4 6 8 10 12 14 16 18
2 4 6 8 10 12 14 16 18
Pri
ceT
ota
l Rev
enu
eMonopoly Revenue and Costs
Demand, Marginal Revenue, and Total Revenue for a Pure Monopolist
Elastic Inelastic
Demand and Marginal Revenue Curves
Total-Revenue Curve
DMR
TR
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Bina Nusantara University 11
Monopolistic Competition• Characteristics
– Small Market Shares– No Collusion– Independent Action
• Differentiated Products– Product Attributes– Service– Location– Brand Names and Packaging– Some Control Over Price
• Easy Entry and Exit• Advertising
– Nonprice Competition• Monopolistically Competitive Industries
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Bina Nusantara University 12
Price and Output Determination
• The Firm’s Demand Curve• The Short Run:
– Profit or Loss• The Long Run:
– Only a Normal Profit– Profits: Firms Enter– Losses: Firm’s Leave
• Complications– Product Variety
In Monopolistic Competition
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Bina Nusantara University 13
Price and Output Determination
In Monopolistic CompetitionShort-Run Profits
Quantity
Pri
ce
an
d C
os
ts
MR = MC
MC
MR
D1
ATC
EconomicProfit
Q1
A1
P1
0
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Bina Nusantara University 14
Price and Output Determination
In Monopolistic CompetitionShort-Run Losses
Quantity
Pri
ce
an
d C
os
ts
MR = MC
MC
MR
D2
ATC
Loss
Q2
A2
P2
0
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Bina Nusantara University 15
Price and Output Determination
In Monopolistic CompetitionLong-Run Equilibrium
Quantity
Pri
ce
an
d C
os
ts
MR = MC
MC
MR
D3
ATC
Q3
P3=A3
0
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Bina Nusantara University 16
Three Oligopoly Models
• Kinked Demand Curve : Noncollusive Oligpoly• Collusive Pricing : Cartel and other Collusion• Price Leadership Model
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Bina Nusantara University 17
Pri
ce
Pri
ce a
nd
Co
sts
Quantity Quantity0 0
Kinked-Demand CurveNoncollusive Oligopoly
P0
MR2
D2
D1
MR1
e
f
g
Rivals IgnorePrice Increase
Rivals MatchPrice Decrease
Q0
Competitor and Rivals Strategize Versus Each OtherConsumers Effectively Have 2 Partial Demand Curves
and Each Part Has Its Own Marginal Revenue Part
MR2
D2
D1
MR1Q0
MC1
MC2
P0
Resulting in a Kinked-Demand Curve to the Consumer – Price and Output Are Optimized at the Kink
e
f
g
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Bina Nusantara University 18
Kinked-Demand CurveNoncollusive Oligopoly
• Criticisms of the Model– Doesn’t Explain How Price Gets to the
Kink (P0)– Oligopoly Prices Are Not As Rigid During
Instability as the Model Indicates– Possibility of Price Wars
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Bina Nusantara University 19
Pri
ce a
nd
Co
sts
Quantity
Cartels and Other Collusion
• Price and Output– Collusion and Tendency Toward Joint-
Profit Maximization
D
MR=MC
ATC
MC
MR
P0
A0
Q0
EconomicProfit
Effectively SharingThe Monopoly Profit
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Bina Nusantara University 20
Cartels and Other Collusion
• Covert Collusion– Tacit Understandings
• Obstacles to Collusion– Demand and Cost Differences– Number of Firms– Cheating– Recession– Potential Entry– Legal Obstacles:
• Antitrust Law
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Bina Nusantara University 21
Price Leadership Model
• Leadership Tactics• Infrequent Price Changes• Communications• Limit Pricing• Breakdowns in Price Leadership:
– Price Wars