BU111 Chapter Notes - Chapter 15: Market Power, Marginal Revenue, Marginal Cost
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While a competitive firm is a price taker, a monopoly firm is a price maker. They are unchecked by competition, the outcome of monopoly is often not in the best interest of the society. A firm is monopoly if the sole seller of its products and its products do not have close subs. Main barriers to entry: monopoly resources: a key resource is owned by a single firm. Simplest way to form a monopoly: government-created monopolies: the government gives a single firm the exclusive right to produce some good or service. Ex: copyrights / patents: natural monopolies: a single firm can produce output at a lower cost than a large number of producers. A monopolist"s marginal revenue is always less than the price of its good. The output effect: more output is sold, q is higher = higher total revenue. The price effect: the price falls, so p is lower, which tends to decrease total revenue.