ECO101H1 Lecture Notes - Lecture 16: Natural Monopoly, Marginal Revenue, Prussian P 8
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ECO101H1 Full Course Notes
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Single seller (of product with no close substitutes ) Barriers to entry: legal barriers (legal monopoly) Natural monopoly: high fixed costs + low marginal costs: atc may continually decline (e. g. , pipeline) Implication: efficient to have only one firm. Toronto hydro, supplier of electricity (regulated by government) Toronto maple leafs, supplier of professional hockey (not regulated) Note: owners of toronto maple leafs, by agreement with nhl, can prevent another franchise from opening nearby (for example, hamilton) For a monopolist: market dd = firm dd, market dd slopes downward, so firm dd slips downward, to sell an additional unit of output, monopolist must lower price of all previous units, implication: mr is less than p. At q = 2, mr = 7 < p = 8. At q = 4, mr = 3 < p = 6. To sell an additional unit of output, monopolist must lower price.
