New User Special Price Expires in

Let's log you in.

Sign in with Facebook


Don't have a StudySoup account? Create one here!


Create a StudySoup account

Be part of our community, it's free to join!

Sign up with Facebook


Create your account
By creating an account you agree to StudySoup's terms and conditions and privacy policy

Already have a StudySoup account? Login here

Chapter 10: Monopoly and Monopsony

by: Natalie Strawn

Chapter 10: Monopoly and Monopsony ECO 420K

Natalie Strawn
GPA 3.66

Preview These Notes for FREE

Get a free preview of these Notes, just enter your email below.

Unlock Preview
Unlock Preview

Preview these materials now for free

Why put in your email? Get access to more of this material and other relevant free materials for your school

View Preview

About this Document

These notes cover the depths between the differences of monopoly and monopsony while also providing definitions, formulas, and examples.
John Thompson
Class Notes
monopoly, monopsony, markets, Economics, Microeconomics
25 ?





Popular in Economcs

This 3 page Class Notes was uploaded by Natalie Strawn on Saturday July 2, 2016. The Class Notes belongs to ECO 420K at 1 MDSS-SGSLM-Langley AFB Advanced Education in General Dentistry 12 Months taught by John Thompson in Summer 2016. Since its upload, it has received 16 views. For similar materials see MICROECONOMIC THEORY in Economcs at 1 MDSS-SGSLM-Langley AFB Advanced Education in General Dentistry 12 Months.


Reviews for Chapter 10: Monopoly and Monopsony


Report this Material


What is Karma?


Karma is the currency of StudySoup.

You can buy or earn more Karma at anytime and redeem it for class notes, study guides, flashcards, and more!

Date Created: 07/02/16
June 23, 2016 Ch 10 – Monopoly and Monopsony Monopoly – Single seller, no close substitutes, barriers to entry Monopsony – Single buyer, (opposite of monopoly) A monopoly will produce the output where MR = MC, just like competitive firms. -(linear) demand P = a -bQ -total revenue TR = PQ = aQ – bQ^2 -marginal revenue MR = dTR/dQ = a – 2bQ For linear demand, the corresponding MR curve has (1) same intercept and (2) twice the slope. (Figure 10.1) Monopoly chooses output where MR = MC and sets price. (Figure 10.2) Find profit maximizing Q,P, ∏, MC and Ep. Demand P = 40 – Q Cost TC = 50 + Q^2 (a)MR =MC method (b) profit function method Fill in work*** What if the monopoly has multiple plants? For profit maximization, MR = MC1 and MR = MC2 -Why MC1 = MC2? *Produce more in the cheaper plant until marginal cost becomes the same in both plants. Same output at a lower cost. The optimal markup is a function of elasticity: L = (P – MC)/P = 1/ |Ep| The Lerner Index – a measurement of monopoly power. (Figure 10.8) -Perfect competition (firms) = 0 -Least competition (monopoly) = 1 *A profit maximizing firm will never price in the inelastic part of their demand curve. -Inelastic: raise revenue, lower cost, raise price until not inelastic *A monopoly has no supply curve. “Market power” and “monopoly power” are synonymous. They mean price setting ability. Monopoly power comes from: a) the elasticity of market demand b) the number of firms c) the interaction of firms The social cost of monopoly is the DWL, and possibly also rent seeking behavior and X-inefficiency. (Figure 10.10) Rent seeking – using resources in socially unproductive efforts to acquire monopoly power. (Think lobbying). X-inefficiency - when technical efficiency is not being achieved due to a lack of competitive pressure. Natural monopoly – a market in which a monopoly would naturally arise if left unregulated. (Figure 10.12) -Typically, the result of large fixed costs, low marginal cost, and significant economies of scale. -In many cases, natural monopolies are allowed, but regulated. -Rate-of-return regulation is commonly used where price regulation isn’t feasible. Monopsony A monopsony is a firm with significant buying power. “Monopsony power” enables a firm to drive price below the competitive price. Examples: (a) public school systems (b) defense spending by gov’t (c) the ‘company town’ (d) Massive retailers (Walmart) A firm with monopsony power would buy as long as the marginal benefit exceeds marginal cost -Marginal value (MV) - additional benefit from buying one more unit. Given by demand curve. -Average expenditure (AE) – average cost of buying Q units. Given by the supply curve. -Marginal expenditure (ME) – additional cost from buying one more unit. Finding ME… -linear supply: P = a +bQ -total expenditure: TE = PQ = aQ + bQ^2 -marginal expenditure: ME = dTE/dQ = a + 2bQ For linear supply, the corresponding ME curve has: 1) Same intercept 2) Twice the slope (Figure 10.14) A monopsonist chooses output where MV = ME and sets price. Find profit maximizing n and W. Demand W = 30,000 -125n Supply W = 1,000 + 75n A monopsony is similar to monopoly. Monopsony power comes from: a) The elasticity of market supply b) The number of buyers c) The interaction among buyers (Figure 10.16) The social cost of monopsony is DWL. (Figure 10.17)


Buy Material

Are you sure you want to buy this material for

25 Karma

Buy Material

BOOM! Enjoy Your Free Notes!

We've added these Notes to your profile, click here to view them now.


You're already Subscribed!

Looks like you've already subscribed to StudySoup, you won't need to purchase another subscription to get this material. To access this material simply click 'View Full Document'

Why people love StudySoup

Bentley McCaw University of Florida

"I was shooting for a perfect 4.0 GPA this semester. Having StudySoup as a study aid was critical to helping me achieve my goal...and I nailed it!"

Amaris Trozzo George Washington University

"I made $350 in just two days after posting my first study guide."

Steve Martinelli UC Los Angeles

"There's no way I would have passed my Organic Chemistry class this semester without the notes and study guides I got from StudySoup."


"Their 'Elite Notetakers' are making over $1,200/month in sales by creating high quality content that helps their classmates in a time of need."

Become an Elite Notetaker and start selling your notes online!

Refund Policy


All subscriptions to StudySoup are paid in full at the time of subscribing. To change your credit card information or to cancel your subscription, go to "Edit Settings". All credit card information will be available there. If you should decide to cancel your subscription, it will continue to be valid until the next payment period, as all payments for the current period were made in advance. For special circumstances, please email


StudySoup has more than 1 million course-specific study resources to help students study smarter. If you’re having trouble finding what you’re looking for, our customer support team can help you find what you need! Feel free to contact them here:

Recurring Subscriptions: If you have canceled your recurring subscription on the day of renewal and have not downloaded any documents, you may request a refund by submitting an email to

Satisfaction Guarantee: If you’re not satisfied with your subscription, you can contact us for further help. Contact must be made within 3 business days of your subscription purchase and your refund request will be subject for review.

Please Note: Refunds can never be provided more than 30 days after the initial purchase date regardless of your activity on the site.