ECN 121 Chapter Notes - Chapter 13: Deadweight Loss, Natural Monopoly, Perfect Competition
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Explain what it means for a company to be a monopolist and what it means for an industry to be a monopoly. For a company to be a monopolist, a firm is the only producer of a good that has no close substitutes. For an industry to be a monopoly, it means that a monopolist controls the industry. Explain what market power means in the context of economics. Market power means that a firm has the ability to raise prices. Explain what it means for there to be a barrier to entry. A barrier to entry means that in order to earn economic profits, a monopolist must be protected by a barrier to entry and it is something that prevents other firms from entering the industry. Explain what causes a natural monopoly to exist. A natural monopoly exists when increasing returns to scale provide a large cost advantage to a single form that produces all of an industry"s output.