ECON 2010 Lecture Notes - Lecture 25: Club Good, Monopsony, Perfect Competition
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ECON 2010 Full Course Notes
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Monopoly is one seller who sets the price. Labor unions and cell phone carriers are the closest things to american monopolies. Monopolies exist due to barriers to entry: ownership of a key resource (diamonds/oil, legal protection from the government (club goods, patents, etc. ). The government gives a single firm exclusive rights to a certain good: economies of scale (natural monopolies). One big firm can produce at a lower cost than every other small firm (cable companies). Then the big firms can chase the smaller firms out of the market completely. Intervention is when the government pays you back for your investment. Demand curves are perfectly horizontal for competitive firms. Output effect for monopolies: when quantity increases total revenue increases. Price effect for monopolies: when price decreases total revenue decreases. Over time the price effect will have a greater effect on monopolies but initially output effect has the larger impact.