Monopoly-Prices Large Production 1

(1) Under the assumed conditions of demand as represented by the figure, crude monopoly-price is 6, sales are 3, and total profits 18.

(2) If cost is 3, monopoly-price is 8, sales are 2 and profits 10. Competitive price being 4, sales would be 4, and profits 4.

(3) If cost is 4, monopoly-price is 8, sales are 2, and profits 8. Com petitive price would be 5 and sales (4) If cost is 5, monopoly-price is still 8, and sales 2, but profits fall to 6. Competitive price would be 6, and sales 3.

(5) If cost is 6, monopoly-price is 9, sales 11/2, and profits 41/4. Competitive price would be 7, and sales (Because of the very small numbers used in the scale, quantities have been expressed in half units.) 1 It is represented by the largest rectangle (product of price per unit by number of units sold) which can be inscribed within the coOrdi nates and the hypothetical demand curve. (Figure 14, ch. 8.) cost. This is the product of the profit (not price) per unit by the number of units sold.' This never can be less than crude monopoly-price. In cases of very inelastic demand it may with certain ranges of price be no greater; that is, the • Represents conditions as in the preceding figure, except that demand is somewhat more elastic.

(1) If cost is zero, monopoly-price would be 4. Competitive price must sink to nothing, but, if, with limited supplies, demand continues, the amount of the price would eventually all be imputed to cost (plus the minimum profit).

(2) If cost is 2, monopoly price is 5, sales are 3, and profits 9 (Competitive price 3, and sales 5.) (3) If cost is 3, monopoly-price is 5%, sales are and profits 6%. (Competitive price 4, sales 4.) (4) If cost is 4, monopoly-price is 6, sales 2, and profits 4. (Com petitive price 5, sales 3.) entire cost in such cases is a subtraction from what would otherwise be monopoly profit.

§ 3. General principles of uniform monopoly-price and cost. Inspection of Figure 47 and of the figure showing a medium demand (Figure 48) and a more elastic demand (Fig ure 49) reveals certain general effects. Except in some pe culiar situations an increase of cost raises the theoretical monopoly-price and reduces sales, and decrease of cost low ers theoretical monopoly-price and increases sales. The more elastic the demand for an article, the less is the difference be 2 This may be represented by the largest rectangle that can be in scribed within the price line and the cost line, drawn above the base line, and parallel with it.

tween competitive price and monopoly-price. The less elastic the demand the greater the motive for monopoly, and the more elastic the demand the less the motive for a general monopoly price. In some cases, where demand is very inelastic, the first increments of cost have slight effect either on monopoly price or on the amount advantageously produced; cost within a certain range of monopoly falls largely upon profits and at certain situations may within a narrow range fall entirely upon them. The profits per unit being large, the price can not be raised without reducing sales. Choice will be made to give the largest profits (unit profit multiplied by sales). In this it is generally true that the greater the ratio of the cost " In comparing this with the preceding figures the general principles in sec. 3 appear.

to the crude monopoly-price (other things equal) the less is the range of monopoly power. The amount of sales that is possible with the higher monopoly-price is always less than with a competitive price. Monopoly-price at any level of costs from zero upwards is always higher than a competitive price (when costs are the same for competitors and for mo nopoly). We must note later the peculiar case where mo nopoly cost is lower; that is, where cost falls with quantity of output, and where large output is dependent on monopoly.

§ 4.

Temporary and limited monopoly, and discrimina tion. The foregoing applies to uniform monopoly-price. This is sometimes the problem presented to the monopolist, as to the manufacturer of a patented article in determining the advertised price of an article. Even then, however, some variation in price may be made by paying freights, giving cut prices to wholesale dealers in some localities, because of distance, or of peculiar condition of competition with a similar article, or on the principle of dumping, etc. Again and again the monopolist is tempted to depart from the uniform monop oly-price—to maintain it within the range of monopoly power, but to cut it by successive reductions as the conditions shade off toward competition, as they always do, more or less.