ECN 104 Lecture Notes - Lecture 10: Demand Curve, Natural Monopoly, Deadweight Loss
Document Summary
Monopoly - a firm that is the sole seller of a produce without close substitutesthe key difference: A monopoly firm has market power, the ability to influence the market price of the product it sells. The main cause of monopolies is barriers to entry - other firms cannot enter the market. In a competitive market, the market demand curve slopes downward. But the demand curve for any individual firm"s product is horizontal at the market price. The firm can increase quantity without lowering price. So mr = p for the competitive firm. A monopolist is the only seller, so it faces the market demand curve to sell a larger quantity, the firm must reduce price. To sell a larger quantity, the monopolist must reduce the price on all the units it sells. Mr could even be negative if the price effect exceeds the output effect (when company. Like a competitive firm, a monopolist maximizes profit by producing the quantity where.