ECO 1302 Lecture Notes - Lecture 12: Deadweight Loss, Tacit Collusion, Oligopoly

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A natural monopoly is a firm in which the most efficient scale is very large. Here, average total cost declines until a single firm is producing nearly the entire amount demanded in the market. With one firm producing 500,000 units, average total cost is per unit. With five firms producing 100,000 units, average total cost in per unit. A barrier to entry that grants exclusive use of the patented product or process to the inventor. In some cases, governments impose entry restrictions on firms as a way of controlling activity. If production requires a particular input and one firm owns the entire supply of that input, that firm will control the industry. Network externalities- the value of a product to a consumer increases with the number of that product being sold or used in the market. Deadweight loss or excess burden of a monopoly- the social cost associated with the distortion in consumption from a monopoly price.

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