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ECON102 Chapter Notes -Marginal Cost, Marginal Revenue, Economic Surplus

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orangecoyote929
21 Nov 2013
School
University of Waterloo
Department
Economics
Course
ECON102
Professor
Eva Lau

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ECON102 Full Course Notes
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Document Summary

Monopoly: a market with a single firm that produces a good or service for which no close substitute exists and that is protected by a barrier that prevents other firms from selling that good or service. How monopoly arises no close substitutes if a good has a close substitute, the firm faces competition from producers of the substitutes. Barriers to entry a constraint that protects a firm from potential competitors natural, ownership, legal natural monopoly: a monopoly created by a natural barrier to entry. Marginal revenue = change in total revenue. Price and output decision a monopoly sets its price and output at levels that maximize economic profit page 1 of 4. Comparing price and output perfect competition equilibrium occurs where the supply curve and demand curve intersect each firm take that price and maximizes its profit by producing the quantity at which mc = mr.

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Related Questions

When the demand for a good or service limits the quantity that can be sold to an output at which the firm experiences economies of scale, the ____.
 
A) firm is a single-price monopoly
B) good that the industry produces has close substitutes
C) firm is a natural monopoly
D) firms are protected from competition by a legal barrier

 

When is a market classified as monopolistically competitive? 
 
a) A small number of firms compete.
b) There is a barrier that blocks entry by other firms.
c) Many firms produce the same product.
d) Many firms produce a slightly differentiated product.
e) There is one firm that sells a good or service with no close substitutes.

Your feedback will be greatly appreciated. Thanks in advance.

Q: Point out one product that you believe is produced by a “pure” monopoly firm (or a firm with a high degree of monopoly power).

Is it a local, regional or national monopoly?

What are some of the Barriers to Entry into this industry?

For the product listed, list substitute(s) for this “monopoly.”

Demonstrate how the relative “closeness” of the substitutes listed determines, to a large degree, effective limits to the monopoly power of these firms.

A: I believe Amtrak is a monopoly. This is a national monopoly because its available coast to coast, you may travel locally with Amtrak, state to state as well. The barrier for entry are the limited railroad systems for Amtrak, limited resource, cost to produce additional train system, and fact that Amtrak is not producing a profit even though they are a monopoly. Train transportation is not popular anymore, and is difficult for them to cut costs because they don’t have a lot of train tickets purchased. So, they increase their prices for what they do sell. Other forms of transportation are not changing the fact that it is a monopoly, but has affected it from taking control of transportation. Purchasing a rental car, bus ticket or a plane ticket has been more convenient and inexpensive. I personally have wanted to purchase a train ticket multiple times, but the routes are wrong, or the length of trip duration has exceeded my availability, and costs are not worth the time. There are smaller train lines but are not monopolized like Amtrak. Example you travel and look up Amtrak station, name of the company. When you fly the airlines is not called the airport which has multiple airlines. Train station is usually Amtrak.