FNCE 370 Lecture Notes - Lecture 15: Deadweight Loss, Economic Surplus, Demand Curve
Document Summary
Exclusive ownership of a key resource is a potential cause of monopoly, however economies are large and it"s rare. Due to international trade there are few: government-created monopolies. Encourages research and creativity (drug research and authors making books: natural monopolies. Occurs when there are economies of scale over the relevant range of output. Town must build pipes which is cheaper for one person to do it all and serve the entire market: how monopolies make production and pricing decisions, monopoly vs. competition. The difference between competitive firms and a monopoly is the monopoly"s ability to influence the price of its output. Competitive firms are price takers and demand curve is horizontal and perfectly elastic. Monopoly"s demand curve is downward because if they raise the price people will buy less. It is a constraint on the monopoly"s ability to gouge people. A monopolist"s marginal revenue is always less than the price of the good.
