Ch 15. Monopoly

.title[
# Ch 15. Monopoly
]
.subtitle[
## Microeconomics for Students of Accounting, Finance, and Digital Applications
]
.author[
### Lyuben Ivanov, PhD
]
.institute[
### Sofia University St. Kliment Ohridski
]
.date[
### Fall Term 2024/2025
]

---

class: clear, middle, no-scribble
  
  .font200[
<strong>  Introduction</strong>
]
<hr>

---

---

# Introduction

You have already learned:

<table class="none">
  <tr style="background-color: transparent;">
    <td style="text-align: right; vertical-align: top; width: 50px;"><i class="fa fa-chevron-circle-right"></td>
    <td style="width: 20px"> </td>
    <td style="text-align: left; vertical-align: top; width: auto;">how investing in stocks can be very beneficial over the long run</td>
  </tr>
</table>

<table class="none">
  <tr style="background-color: transparent;">
    <td style="text-align: right; vertical-align: top; width: 50px;"><i class="fa fa-chevron-circle-right"></td>
    <td style="width: 20px"> </td>
    <td style="text-align: left; vertical-align: top; width: auto;">the importance of profitability and the growth prospects of the underlying business</td>
  </tr>
</table>

<table class="none">
  <tr style="background-color: transparent;">
    <td style="text-align: right; vertical-align: top; width: 50px;"><i class="fa fa-chevron-circle-right"></td>
    <td style="width: 20px"> </td>
    <td style="text-align: left; vertical-align: top; width: auto;">how in a competitive market the growing demand does not result in growing revenues and abnormal profits for an individual firm in the long run</td>
  </tr>
</table>

Now you are going to learn how the **market power** of a business determines its profitability in the short term **and** in the long term!

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# Market Power

<table class="none">
  <tr>
    <td style="text-align: center; vertical-align: middle;"><b>market power</b></td>
    <td> </td>
    <td> </td>
    <td> The ability possessed by all price-setting firms to raise price without losing all sales, which
causes the price-setting firm’s demand to be downward-sloping.</td>
  </tr>
  <tr>
  <td> </td>
  <td> </td>
  <td> </td>
  <td> </td>
  </tr>
  <tr>
    <td style="text-align: center; vertical-align: middle;"><i class="fa fa-lightbulb-o"></i></td>
    <td> </td>
    <td> </td>
    <td> A way to measure market power is the Lerner index, a ratio that measures the
proportionate amount by which price (P) exceeds marginal cost (MC). It can be shown that $$\sf \text{Lerner index} = \frac{P-MC}{MC} = 
- \frac{1}{E}$$ where E is the price elasticity of demand. </td>
  </tr>
</table>

---

# Quick Test

<div>
    <p>Think Different Inc. is providing the highest quality advertising services in the market. It is currently selling 5 campaigns per year at price of &dollar;5 mln per campaign. At the same time, the marginal cost of a campaign is &dollar;1 mln. How much is the absolute value of the PED for Think Different Inc's services?</p>
</div>

<div style="position: relative; top: 240px">
    <input type="text" id="userAnswer1" placeholder="Answer" class="input-field"><button onclick="checkAnswerO(0.25, 'result1', 'userAnswer1')" class="submit-button">Check</button>
</div>
<div id="result1"></div>

---

# Value of $100 Invested in Apple in 1997

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# Value of $100 Invested in NVDA in 1997

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<hr>

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# Definition, Examples and Causes

<table class="none">
  <tr>
    <td style="text-align: center; vertical-align: middle;"><b>monopoly</b></td>
    <td> </td>
    <td> </td>
    <td>A firm that is the sole seller of a product without any close substitutes.</td>
  </tr>
  <tr>
  <td> </td>
  <td> </td>
  <td> </td>
  <td> </td>  
  </tr>
  <tr>
    <td style="text-align: center; vertical-align: middle;"><i class="fa fa-globe"></i></td>
    <td> </td>
    <td> </td>
    <td> NVIDIA, Microsoft, Facebook, Google, Apple, the local utility company </td>
  </tr>
  <tr>
  <td> </td>
  <td> </td>
  <td> </td>
  <td> </td>
  </tr>
  <tr>
    <td style="text-align: center; vertical-align: middle;"><i class="fa fa-lightbulb-o"></i></td>
    <td> </td>
    <td> </td>
    <td>The fundamental cause of monopoly are the so called <b>barriers to entry</b>: monopoly resources, government regulation, the specifics of the production process (natural monopoly)</td>
  </tr>
</table>

---

# Ownership of Key Resources

<table class="none">
  <tr>
    <td style="text-align: center; vertical-align: middle;"><b> monopoly over key resource</b></td>
    <td> </td>
    <td> </td>
    <td> A firm is the sole owner of a key resource without which competitors can not provide a substitute product. </td>
  </tr>
  <tr>
    <td style="text-align: center; vertical-align: middle;"><i class="fa fa-globe"></i></td>
    <td> </td>
    <td> </td>
    <td> Apple employs some of the best industrial designers in the world; NVIDIA employs some of the best chip design engineers in the world; Microsoft and Google employ some of the best software engineers in the world. </td>
  </tr>
  <tr>
    <td style="text-align: center; vertical-align: middle;"><i class="fa fa-lightbulb-o"></i></td>
    <td> </td>
    <td> </td>
    <td> Proprietary knowledge is a very special type of key resource for tech companies that is mostly embodied in the people working in the organization and can be protected by confidentiality agreements and trade secret laws </td>
  </tr>
</table>

---

# Government Legislation

<table class="none">
  <tr>
    <td style="text-align: center; vertical-align: middle;"><b> government-created monopoly </b></td>
    <td> </td>
    <td> </td>
    <td> A monopoly created by a government decree/legislation that provides exclusive rights for the production and/or sale of a given product or exclusive access to an important resource. </td>
  </tr>
  <tr>
    <td style="text-align: center; vertical-align: middle;"><i class="fa fa-globe"></i></td>
    <td> </td>
    <td> </td>
    <td> Patents, copyrights, trademarks, leases and concessions for natural resources; Apple, iPhone, iPad, Mac are all trademarks owned exclusively by Apple. </td>
  </tr>
  <tr>
    <td style="text-align: center; vertical-align: middle;"><i class="fa fa-lightbulb-o"></i></td>
    <td> </td>
    <td> </td>
    <td> Intellectual property laws are considered beneficial overall BUT a purely government-created monopoly is considered harmful to society. </td>
  </tr>
</table>

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# Extensive Economies of Scale

<table class="none">
  <tr>
    <td style="text-align: center; vertical-align: middle;"><b> natural monopoly </b></td>
    <td> </td>
    <td> </td>
    <td> A type of monopoly that arises because a single firm can supply a good or service to an entire market at a lower cost than could two or more firms. </td>
  </tr>
  
  <tr>
    <td style="text-align: center; vertical-align: middle;"><i class="fa fa-globe"></i></td>
    <td> </td>
    <td> </td>
    <td> Utilities, railways, software development, infrastructure. </td>
  </tr>
  
  <tr>
    <td style="text-align: center; vertical-align: middle;"><i class="fa fa-lightbulb-o"></i></td>
    <td> </td>
    <td> </td>
    <td> This barrier to entry is considered most beneficial to society because allows the economies of scale to be utilized to the maximum, potentially resulting in very low unit-cost of production BUT it usually needs government regulation in order to achieve the lowest possible price and the highest possible output. </td>
  </tr>
</table>

---

# Quick Test

<div class="container">
    <div class="question">
        <p>Encouraging firms to invest in research and development and individuals to engage in creative endeavors such as writing novels is one justification for</p>
    </div>
    <div class="form-check">
        <input class="form-check-input" type="radio" name="choice1" id="choiceA1" value="A">
        <label class="form-check-label" for="choiceA1">
            resource monopolies
        </label>
    </div>
    <div class="form-check">
        <input class="form-check-input" type="radio" name="choice1" id="choiceB1" value="B">
        <label class="form-check-label" for="choiceB1">
            natural monopolies
        </label>
    </div>
    <div class="form-check">
        <input class="form-check-input" type="radio" name="choice1" id="choiceC1" value="C">
        <label class="form-check-label" for="choiceC1">
            government-created monopolies
        </label>
    </div>
    <div class="form-check">
        <input class="form-check-input" type="radio" name="choice1" id="choiceD1" value="D">
        <label class="form-check-label" for="choiceD1">
            breaking up monopolies into smaller firms
        </label>
    </div>
    <br>
    <button class="btn btn-custom mt-3" onclick="checkAnswer('C', 'result1', 'choice1')">Submit</button>
    <div class="result" id="result1"></div>
  </div>

---

# Quick Test Background

Consider a transportation corporation named C.R. Evans that has just completed the development of a new subway system in a medium-sized town in the Northwest. Currently, there are plenty of seats on the subway, and it is never crowded. Its capacity far exceeds the needs of the city. After just a few years of operation, the shareholders of C.R. Evans experienced incredible rates of return on their investment, due to the profitability of the corporation.

---

# Quick Test

<div class="container">
    <div class="question">
        <p>Which of the following statements are most likely to be true?</p>
    </div>
    <div class="form-check">
        <input class="form-check-input" type="radio" name="choice2" id="choiceA2" value="A">
        <label class="form-check-label" for="choiceA2">
            New entrants to the market know they will earn a smaller piece of the market than C.R. Evans currently has AND C.R. Evans is most likely experiencing increasing average total cost
        </label>
    </div>
    <div class="form-check">
        <input class="form-check-input" type="radio" name="choice2" id="choiceB2" value="B">
        <label class="form-check-label" for="choiceB2">
            C.R. Evans is most likely experiencing increasing average total cost AND C.R. Evans is a natural monopoly
        </label>
    </div>
    <div class="form-check">
        <input class="form-check-input" type="radio" name="choice2" id="choiceC2" value="C">
        <label class="form-check-label" for="choiceC2">
             New entrants to the market know they will earn a smaller piece of the market than C.R. Evans currently has AND C.R. Evans is a natural monopoly
        </label>
    </div>
    <div class="form-check">
        <input class="form-check-input" type="radio" name="choice2" id="choiceD2" value="D">
        <label class="form-check-label" for="choiceD2">
            All of the above are correct
        </label>
    </div>
    <br>
    <button class="btn btn-custom mt-3" onclick="checkAnswer('C', 'result2', 'choice2')">Submit</button>
    <div class="result" id="result2"></div>
  </div>

---

# Quick Test

<div class="container">
    <div class="question">
        <p>C.R. Evans may continue to be a monopolist in the subway transportation industry only if</p>
    </div>
    <div class="form-check">
        <input class="form-check-input" type="radio" name="choice3" id="choiceA3" value="A">
        <label class="form-check-label" for="choiceA3">
            population growth leads to an overcrowding of the subway cars
        </label>
    </div>
    <div class="form-check">
        <input class="form-check-input" type="radio" name="choice3" id="choiceB3" value="B">
        <label class="form-check-label" for="choiceB3">
            there are no new entrants to the market
        </label>
    </div>
    <div class="form-check">
        <input class="form-check-input" type="radio" name="choice3" id="choiceC3" value="C">
        <label class="form-check-label" for="choiceC3">
            demand for transportation services decreases
        </label>
    </div>
    <div class="form-check">
        <input class="form-check-input" type="radio" name="choice3" id="choiceD3" value="D">
        <label class="form-check-label" for="choiceD3">
            All of the above are correct
        </label>
    </div>
    <br>
    <button class="btn btn-custom mt-3" onclick="checkAnswer('B', 'result3', 'choice3')">Submit</button>
    <div class="result" id="result3"></div>
  </div>

---

<hr>

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# Perfect Competition vs Monopoly

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# Perfect Competition vs Monopoly

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# Perfect Competition vs Monopoly

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# Marginal Revenue For a Monopoly

There are two conflicting effects on the monopoly's total revenue when the monopolistic firm sells an extra unit of its product:

1.  **The output effect** &mdash;  the extra unit of output being sold contributes positively to total revenue;

2.  **The price effect**  &mdash;  in order to sell an extra unit of its product the monopoly NEEDS to decrease the price for ALL units it sells hence the price it gets for the extra unit (marginal revenue) is less than the price (average revenue) it would get if it didn't sell that unit; the dropping price contributes negatively to total revenue because (in absence of price discrimination) it applies to ALL units, not just to the extra one

---

# Quick Test

<div>
    <p>A monopoly firm can sell 200 units of output for &dollar;36.00 per unit. Alternatively, it can sell 201 units of output for &dollar;35.80 per unit. How much is the marginal revenue of the 201<sup>st</sup> unit of output?</p>
</div>

<div style="position: relative; top: 330px">
    <input type="text" id="userAnswer2" placeholder="Answer" class="input-field"><button onclick="checkAnswerO(-4.2, 'result2', 'userAnswer2')" class="submit-button">Check</button>
</div>
<div id="result2"></div>

---

# Numerical Example: Monopoly Well

.font80[
<table class="none">
 <thead>
  <tr>
   <th style="text-align:center;"> Quantity (Q) </th>
   <th style="text-align:center;"> Price (P) </th>
   <th style="text-align:center;"> Total Revenue (TR) </th>
   <th style="text-align:center;"> Average Revenue (AR) </th>
   <th style="text-align:center;"> Marginal Revenue (MR) </th>
  </tr>
 </thead>
<tbody>
  <tr>
   <td style="text-align:center;"> 0 </td>
   <td style="text-align:center;"> 11 </td>
   <td style="text-align:center;"> 0 </td>
   <td style="text-align:center;" class="can-edit"> </td>
   <td style="text-align:center;" class="can-edit"> </td>
  </tr>
  <tr>
   <td style="text-align:center;"> 1 </td>
   <td style="text-align:center;"> 10 </td>
   <td style="text-align:center;"> 10 </td>
   <td style="text-align:center;" class="can-edit"> </td>
   <td style="text-align:center;" class="can-edit"> </td>
  </tr>
  <tr>
   <td style="text-align:center;"> 2 </td>
   <td style="text-align:center;"> 9 </td>
   <td style="text-align:center;"> 18 </td>
   <td style="text-align:center;" class="can-edit"> </td>
   <td style="text-align:center;" class="can-edit"> </td>
  </tr>
  <tr>
   <td style="text-align:center;"> 3 </td>
   <td style="text-align:center;"> 8 </td>
   <td style="text-align:center;"> 24 </td>
   <td style="text-align:center;" class="can-edit"> </td>
   <td style="text-align:center;" class="can-edit"> </td>
  </tr>
  <tr>
   <td style="text-align:center;"> 4 </td>
   <td style="text-align:center;"> 7 </td>
   <td style="text-align:center;"> 28 </td>
   <td style="text-align:center;" class="can-edit"> </td>
   <td style="text-align:center;" class="can-edit"> </td>
  </tr>
  <tr>
   <td style="text-align:center;"> 5 </td>
   <td style="text-align:center;"> 6 </td>
   <td style="text-align:center;"> 30 </td>
   <td style="text-align:center;" class="can-edit"> </td>
   <td style="text-align:center;" class="can-edit"> </td>
  </tr>
  <tr>
   <td style="text-align:center;"> 6 </td>
   <td style="text-align:center;"> 5 </td>
   <td style="text-align:center;"> 30 </td>
   <td style="text-align:center;" class="can-edit"> </td>
   <td style="text-align:center;" class="can-edit"> </td>
  </tr>
  <tr>
   <td style="text-align:center;"> 7 </td>
   <td style="text-align:center;"> 4 </td>
   <td style="text-align:center;"> 28 </td>
   <td style="text-align:center;" class="can-edit"> </td>
   <td style="text-align:center;" class="can-edit"> </td>
  </tr>
</tbody>
</table>
]

---

# Profit Analysis

`$$\begin{aligned}
\sf \text{Total profit}  & \sf = TR(Q) - TC(Q)  \\ \\
 & \sf = P(Q) \times Q - ATC(Q) \times Q \\ \\
 & \sf = [P(Q) - ATC(Q)]\times Q \\ \\
 & \sf = [AR(Q) - ATC(Q)] \times Q \\ \\
 & \sf = \text{Profit margin}(Q)\times Q \\ \\
\end{aligned}$$`

---

# Marginal Analysis

<br>

`$$\begin{aligned}
\sf \text{Marginal profit }(\pi)  & \sf = \frac{\Delta \text{Total profit}}{\Delta Q} \\ \\
 & = \sf \frac{\Delta TR - \Delta TC}{\Delta Q} \\ \\
 & = \sf \frac{\Delta TR}{\Delta Q} - \frac{\Delta TC}{\Delta Q} \\ \\
 & = \sf {MR(Q)} - MC(Q) \\ \\
 \end{aligned}$$`

---

# Money-Losing Monopoly (Short Run)

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# Money-Losing Monopoly (Short Run)

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# Money-Losing Monopoly (Short Run)

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# Profitable Monopoly (Short Run)

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# Quick Test

<div>
    <p>In the figure to the right, P<sub>0</sub>=10, P<sub>1</sub>=14, P<sub>2</sub>=22, P<sub>3</sub>=30, Q<sub>0</sub>=5, Q<sub>1</sub>=8, Q<sub>2</sub>=14, Q<sub>3</sub>=15, Q<sub>4</sub>=22. How much output should the firm produce to maximize its revenue?</p>
</div>

<div style="position: relative; top: 90px">
    <input type="text" id="userAnswer4" placeholder="Answer" class="input-field"><button onclick="checkAnswerO(22, 'result4', 'userAnswer4')" class="submit-button">Check</button>
</div>
<div id="result4"></div>
  
]

---

# Quick Test

<div>
    <p>In the figure to the right, P<sub>0</sub>=10, P<sub>1</sub>=14, P<sub>2</sub>=22,  P<sub>3</sub>=30, Q<sub>0</sub>=5, Q<sub>1</sub>=8, Q<sub>2</sub>=14, Q<sub>3</sub>=15, Q<sub>4</sub>=22. What price should the firm charge to maximize its profit?</p>
</div>

<div style="position: relative; top: 90px">
    <input type="text" id="userAnswer5" placeholder="Answer" class="input-field"><button onclick="checkAnswerO(30, 'result5', 'userAnswer5')" class="submit-button">Check</button>
</div>
<div id="result5"></div>
  
]

---

# Quick Test

<div>
    <p>In the figure to the right, P<sub>0</sub>=10, P<sub>1</sub>=14, P<sub>2</sub>=22,  P<sub>3</sub>=30, Q<sub>0</sub>=5, Q<sub>1</sub>=8, Q<sub>2</sub>=14, Q<sub>3</sub>=15, Q<sub>4</sub>=22. What would be the firm's revenue at the profit maximizing price?</p>
</div>

<div style="position: relative; top: 90px">
    <input type="text" id="userAnswer6" placeholder="Answer" class="input-field"><button onclick="checkAnswerO(420, 'result6', 'userAnswer6')" class="submit-button">Check</button>
</div>
<div id="result6"></div>
  
]

---

# Quick Test

<div>
    <p>In the figure to the right, P<sub>0</sub>=10, P<sub>1</sub>=14, P<sub>2</sub>=22,  P<sub>3</sub>=30, Q<sub>0</sub>=5, Q<sub>1</sub>=8, Q<sub>2</sub>=14, Q<sub>3</sub>=15, Q<sub>4</sub>=22. What would be the firm's total cost at the profit maximizing price?</p>
</div>

<div style="position: relative; top: 90px">
    <input type="text" id="userAnswer7" placeholder="Answer" class="input-field"><button onclick="checkAnswerO(140, 'result7', 'userAnswer7')" class="submit-button">Check</button>
</div>
<div id="result7"></div>
  
]

---

# Quick Test

<div>
    <p>In the figure to the right, P<sub>0</sub>=10, P<sub>1</sub>=14, P<sub>2</sub>=22,  P<sub>3</sub>=30, Q<sub>0</sub>=5, Q<sub>1</sub>=8, Q<sub>2</sub>=14, Q<sub>3</sub>=15, Q<sub>4</sub>=22. What would be the firm's maximum possible profit?</p>
</div>

<div style="position: relative; top: 90px">
    <input type="text" id="userAnswer8" placeholder="Answer" class="input-field"><button onclick="checkAnswerO(280, 'result8', 'userAnswer8')" class="submit-button">Check</button>
</div>
<div id="result8"></div>
  
]

---

# Profitable Monopoly (Long Run)

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<hr>

---

# Welfare Loss Diagram

.panelset.sideways.right[
.panel[
.panel-name[MC=MR]
<img src="welfare-loss-1.svg" style="width: 100%;">
]
.panel[
.panel-name[Producer Surplus]
<img src="welfare-loss-2.svg" style="width: 100%;">
]
.panel[
.panel-name[Consumer Surplus]
<img src="welfare-loss-3.svg" style="width: 100%;">
]
.panel[
.panel-name[Social Optimum]
<img src="welfare-loss-4.svg" style="width: 100%;">
]
.panel[
.panel-name[Welfare Loss]
<img src="welfare-loss-5.svg" style="width: 100%;">
]
.panel[
.panel-name[P=MSC]
<img src="welfare-loss-6.svg" style="width: 100%;">
]
]

</div>

---

<hr>

---

# Definition and Example

<table class="none">
  <tr>
    <td style="text-align: center; vertical-align: middle;"><b>price discrimination</b></td>
    <td> </td>
    <td> </td>
    <td> The business practice of selling the same good at different prices to different customers. </td>
  </tr>
 
  <tr>
    <td style="text-align: center; vertical-align: middle;"> <i class="fa fa-globe"></i> </td>
    <td> </td>
    <td> </td>
    <td> E-Pub's cost for publishing an e-book is &dollar;1,000,000, regardless of the number of readers. About 100,000 die-hard fans would pay up to &dollar;40 per book, while 400,000 interested readers would pay up to &dollar;5 per book. If E-Pub charges &dollar;40 per book the revenue (and profit!) would be maximized but the readers would be less than the socially optimal number. If E-Pub charges &dollar;40 to the die-hard fans and &dollar;5 to the rest, both profit and social surplus will be maximized.  </td>
  </tr>
</table>

---

# Quick Test

<div>
    <p>E-Pub's cost for publishing an e-book is &dollar;2,000,000, regardless of the number of readers. About 100,000 die-hard fans would pay up to &dollar;60 per book, while 400,000 interested readers would pay up to &dollar;10 per book. How many books would be sold if E-Pub charges &dollar;60 per book?</p>
</div>

<div style="position: relative; top: 270px">
    <input type="text" id="userAnswer21" placeholder="Answer" class="input-field"><button onclick="checkAnswerO(1e+05, 'result21', 'userAnswer21')" class="submit-button">Check</button>
</div>
<div id="result21"></div>

---

# Quick Test

<div style="position: relative; top: 270px">
    <input type="text" id="userAnswer22" placeholder="Answer" class="input-field"><button onclick="checkAnswerO(5e+05, 'result22', 'userAnswer22')" class="submit-button">Check</button>
</div>
<div id="result22"></div>

---

# Quick Test

<div>
    <p>E-Pub's cost for publishing an e-book is &dollar;2,000,000, regardless of the number of readers. About 100,000 die-hard fans would pay up to &dollar;60 per book, while 400,000 interested readers would pay up to &dollar;10 per book. How much would be the profit if E-Pub charges &dollar;60 per book?</p>
</div>

<div style="position: relative; top: 270px">
    <input type="text" id="userAnswer11" placeholder="Answer" class="input-field"><button onclick="checkAnswerO(4e+06, 'result11', 'userAnswer11')" class="submit-button">Check</button>
</div>
<div id="result11"></div>

---

# Quick Test

<div>
    <p>E-Pub's cost for publishing an e-book is &dollar;2,000,000, regardless of the number of readers. About 100,000 die-hard fans would pay up to &dollar;60 per book, while 400,000 interested readers would pay up to &dollar;10 per book. How much would be the profit if E-Pub charges &dollar;10 per book?</p>
</div>

<div style="position: relative; top: 270px">
    <input type="text" id="userAnswer12" placeholder="Answer" class="input-field"><button onclick="checkAnswerO(3e+06, 'result12', 'userAnswer12')" class="submit-button">Check</button>
</div>
<div id="result12"></div>

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# Quick Test

<div>
    <p>E-Pub's cost for publishing an e-book is &dollar;2,000,000, regardless of the number of readers. About 100,000 die-hard fans would pay up to &dollar;60 per book, while 400,000 interested readers would pay up to &dollar;10 per book. How much would be the profit if E-Pub engages in perfect price discrimination?</p>
</div>

<div style="position: relative; top: 240px">
    <input type="text" id="userAnswer13" placeholder="Answer" class="input-field"><button onclick="checkAnswerO(8e+06, 'result13', 'userAnswer13')" class="submit-button">Check</button>
</div>
<div id="result13"></div>

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# Price Discrimination Diagram

.panelset.sideways.right[
.panel[
.panel-name[MC=MR]
<img src="price-discrimination-1.svg" style="width: 100%;">
]
.panel[
.panel-name[Monopoly Profit]
<img src="price-discrimination-2.svg" style="width: 100%;">
]
.panel[
.panel-name[Consumer Surplus]
<img src="price-discrimination-3.svg" style="width: 100%;">
]
.panel[
.panel-name[DWL]
<img src="price-discrimination-4.svg" style="width: 100%;">
]
.panel[
.panel-name[P=MSC]
<img src="price-discrimination-5.svg" style="width: 100%;">
]
.panel[
.panel-name[Perfect Discrimination]
<img src="price-discrimination-6.svg" style="width: 100%;">
]
]

</div>

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# Imperfect Price Discrimination

Firms in the economy use various strategies to charge different prices to different customers. Here are a few examples:

<table class="none">
  <tr>
    <td style="text-align: center; vertical-align: top;"><b><i class="fa fa-globe"></i> </b></td>
    <td> </td>
    <td> </td>
    <td> Senior and student discounts (movie and theatre tickets). </td>
  </tr>
  
  <tr>
  <td style="text-align: center; vertical-align: top;"> <i class="fa fa-globe"></i> </td>
  <td> </td>
  <td> </td>
  <td> Discounts based on time of booking (airlines, hotels). </td>
  </tr>
  
  <tr>
    <td style="text-align: center; vertical-align: top;"> <i class="fa fa-globe"></i> </td>
    <td> </td>
    <td> </td>
    <td> Coupons and store cards (supermarkets). </td>
  </tr>
  
  <tr>
    <td style="text-align: center; vertical-align: top;"> <i class="fa fa-globe"></i> </td>
    <td> </td>
    <td> </td>
    <td> Financial aid (universities and colleges, hospitals). </td>
  </tr>
  
  <tr>
    <td style="text-align: center; vertical-align: top;"> <i class="fa fa-globe"></i> </td>
    <td> </td>
    <td> </td>
    <td> Discounts based on quantity bought (supermarkets, fast food). </td>
  </tr>
  
  <tr>
    <td style="text-align: center; vertical-align: top;"> <i class="fa fa-globe"></i> </td>
    <td> </td>
    <td> </td>
    <td> Bundling of goods and services (TV and internet). </td>
  </tr>
  
</table>

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<hr>

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# Key Takeways

<table class="none">
  <tr>
    <td style="text-align: center; vertical-align: top;"><b><svg aria-hidden="true" role="img" viewBox="0 0 512 512" style="height:1em;width:1em;vertical-align:-0.125em;margin-left:auto;margin-right:auto;font-size:inherit;fill:currentColor;overflow:visible;position:relative;"><path d="M0 256a256 256 0 1 0 512 0A256 256 0 1 0 0 256zM241 377c-9.4 9.4-24.6 9.4-33.9 0s-9.4-24.6 0-33.9l87-87-87-87c-9.4-9.4-9.4-24.6 0-33.9s24.6-9.4 33.9 0L345 239c9.4 9.4 9.4 24.6 0 33.9L241 377z"/></svg></b></td>
    <td> </td>
    <td> </td>
    <td> The barriers to entry in a monopoly market allow the monopoly firm to earn economic (abnormal) profit in both the short run and long run. </td>
  </tr>
  
  <tr>
  <td> </td>
  <td> </td>
  <td> </td>
  <td> </td>
  </tr>
  
  <tr>
    <td style="text-align: center; vertical-align: top;"><svg aria-hidden="true" role="img" viewBox="0 0 512 512" style="height:1em;width:1em;vertical-align:-0.125em;margin-left:auto;margin-right:auto;font-size:inherit;fill:currentColor;overflow:visible;position:relative;"><path d="M0 256a256 256 0 1 0 512 0A256 256 0 1 0 0 256zM241 377c-9.4 9.4-24.6 9.4-33.9 0s-9.4-24.6 0-33.9l87-87-87-87c-9.4-9.4-9.4-24.6 0-33.9s24.6-9.4 33.9 0L345 239c9.4 9.4 9.4 24.6 0 33.9L241 377z"/></svg></td>
    <td> </td>
    <td> </td>
    <td> Owning (stock of) a firm with significant market power and/or employment by such firm may be very lucrative. </td>
  </tr>
  
  <tr>
  <td> </td>
  <td> </td>
  <td> </td>
  <td> </td>
  </tr>
  
  <tr>
    <td style="text-align: center; vertical-align: top;"><svg aria-hidden="true" role="img" viewBox="0 0 512 512" style="height:1em;width:1em;vertical-align:-0.125em;margin-left:auto;margin-right:auto;font-size:inherit;fill:currentColor;overflow:visible;position:relative;"><path d="M0 256a256 256 0 1 0 512 0A256 256 0 1 0 0 256zM241 377c-9.4 9.4-24.6 9.4-33.9 0s-9.4-24.6 0-33.9l87-87-87-87c-9.4-9.4-9.4-24.6 0-33.9s24.6-9.4 33.9 0L345 239c9.4 9.4 9.4 24.6 0 33.9L241 377z"/></svg></td>
    <td> </td>
    <td> </td>
    <td> However, the monopolies earn abnormal profits by restricting the output/raising the price and by price discrimination, resulting in calls for government regulation and nationalization of monopoly firms. </td>
  </tr>
</table>

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# Questions?

<br>

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class: clear, middle, no-scribble
  
  .font200[
<strong>  And One Last Thing...</strong>
]
<hr>

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# Thank You!

<br>

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