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Understanding Monopoly and Competition in Economics: A Worked Example Presentation

This presentation, based on the material from the WorkedExamples.pdf, delves into the concepts of monopoly and competition. It's designed to provide a clear understanding of firm supply curves through interactive slides. By integrating marginal costs to derive total costs and average costs, the presentation illustrates key economic principles. Explore monopolist's equilibrium under different conditions, including unregulated and regulated markets, and the effects of price ceilings. Enhance your comprehension of these crucial economic topics through visuals and commentary.

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Understanding Monopoly and Competition in Economics: A Worked Example Presentation

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  1. EC202: Worked Example #3.4 Frank Cowell April 2003 • This presentation covers exactly the material set out in the file WorkedExamples.pdf, but with the addition of a few graphics and comments • To start the presentation select Slideshow\View Show or click on icon below left. • Mouse click or [Enter] to advance through slide show

  2. WX3.4: Monopoly and competition Part 1: Competition

  3. WX3.4: Find Firm’s Supply Curve Integrate MC in the question to get total costs Divide by Q to get average costs Differentiate to find minimum AC at Where average costs are: Given a price can then find output from supply curve

  4. Q*= P - a —— b WX3.4: The Firm’s Supply Curve marginal cost a+bQ supply curve P P average cost F/Q+a+0.5bQ Q Q

  5. WX3.4: Monopoly and competition Part 2: Unregulated monopoly

  6. WX3.4: Find monopolist’s equilibrium Given the demand curve (AR), total revenue is So, MR is FOC for the monopolist (MR=MC) is Solving for Q we get And from this we have

  7. WX3.4: Monopolist’s equilibrium P a+bQ marginal cost F/Q+a+0.5bQ P** average cost c** average revenue A - 0.5bQ A - bQ marginal revenue Q** Q

  8. WX3.4: Monopoly and competition Part 3: Regulated monopoly

  9. WX3.4: Introduce price ceiling A price ceiling alters the effective demand curve So AR is now: Multiply by Q and then differentiate to get MR: Note that MR is discontinuous, exactly where AR is kinked Effect of price ceiling depends on position of MC relative to this discontinuity

  10. WX3.4: effect of high price ceiling P (Output unchanged) marginal cost Pmax P** c** average revenue marginal revenue Q0 Q** Q

  11. WX3.4: effect of low price ceiling P (Output falls) marginal cost P** Pmax c** average revenue marginal revenue Q0 Q** Q

  12. WX3.4: effect of intermediate price ceiling P (Output rises to Q0) marginal cost P** Pmax c** average revenue marginal revenue Q0 Q** Q

  13. WX3.4: intermediate price ceiling (2) P (Output rises) marginal cost P** Pmax c** average revenue marginal revenue Q0 Q** Q

  14. WX3.4: Points to remember • Make good use of a helpful diagram to “see” the problem • Re-use the solution to one part of the problem to build the next. • Don’t be fazed by the presence of a discontinuity – everything is nice and regular either side of it.

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