P&R Im7 Ch10 Solutions to Numerical Problems

Chapter 10: Market Power: Monopoly and Monopsony

PART III

MARKET STRUCTURE AND COMPETITVE STRATEGY

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CHAPTER 10

MARKET POWER: MONOPOLY AND MONOPSONY

TEACHING NOTES

This chapter covers both monopoly and monopsony in order to highlight the similarity between the two

types of market power. You might remind students that this is the other end of the market structure

spectrum from perfect competition. Students seem to have an easier time accepting the assumptions

underlying monopoly and monopsony, but you might want to remind them again that economic models

are simplified versions of the real world, and there are very few companies that would qualify as pure

monopolies or monopsonies.

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The chapter begins with a discussion of monopoly power and the monopoly model in Sections 10.1 – 10.4.

Section 10.5 introduces monopsony and offers a comparison of monopoly and monopsony. Section 10.6

discusses sources of monopsony power and the social costs of monopsony power, while Section 10.7

concludes with a discussion of antitrust law. If you are pressed for time you might choose to cover the

first four sections on monopoly and skip the remainder of the chapter. Section 10.7 can be covered even

if you choose to skip Sections 10.5 and 10.6. The last part of 10.1 on the multiplant firm can also be

skipped if necessary, but it is interesting in its own right and particularly useful for deriving the

monopoly marginal cost curve when comparing monopoly to perfect competition in Section 10.4.

Although Chapter 8 presented the general rule for profit maximization, you should review marginal

revenue and the MR = MC rule. Even though monopolists are price setters, we model them as choosing

quantity, and this sometimes confuses students, so you may want to clear this up early in the...