ECON 2 Lecture Notes - Lecture 24: Price Discrimination, Marginal Revenue, Perfect Competition
9 Aug 2020
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The following five factors confer such power: If a single firm controls an input essential to the production of a given product, that firm will have market power. Patents give the inventors or developers of new products the exclusive right to sell those products for a specified period of time. By insulating sellers from competition for an interval, patents enable innovators to charge higher prices to recoup their product"s development costs. By far the most important and enduring of these are economies of scale and network economies. For products with large fixed costs, marginal cost is lower, often substantially, than average total cost, and average total cost declines, often sharply, as output grows. This cost pattern explains why many industries are dominated by either a single firm or a small number of firms. For the perfectly competitive firm, marginal revenue is exactly equal to the market price of the product.
