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ECN 104 Lecture Notes - Lecture 10: Income Distribution, Economic Surplus, Dynamic Efficiency

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School
Ryerson University
Department
Economics
Course
ECN 104
Professor
Frank Trimnell

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Document Summary

Learning objectives after reading this chapter, students should be able to: of. Explain how a monopolists sets its maximizing t output and price. Describe why a monopolist prefers to charge different prices in different markets. Discuss the choices facing governments that regulate monopolies. A small town may have only one airline, bank, etc: analysis of monopolies yields insights concerning monopolistic competition and oligopoly, the more common types of market situations. Barriers to entry limiting competition: economies of scale constitute one major barrier. This occurs where the lowest unit costs and, therefore, lowest unit prices for consumers depend on the existence of a small number of large firms or, in the case of a monopoly, only one firm. Radio and tv stations, taxi companies are examples of government granting licenses where only one or a few firms are allowed to offer the service: ownership or control of essential resources is another barrier to entry.

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Related Questions

Discuss until July 15, 2018. After the deadline, this link will close.


1. Suppose a firm is operating in a competitive market and is maximizing profit by producing at the point where marginal revenue equals marginal cost. Now suppose that consumer wealth decreases in this market (and the good is a normal good). What might you expect to happen to the profit-maximizing output quantity for the firm?


2. In what ways are profit-maximizing and loss-minimizing the same? In what ways are they different?

3. Suppose that De Beers and the local water utility are both monopolists, in the markets for diamond jewelry and water, respectively. If both monopolies decided to raise prices 15 percent, which monopoly would be more likely to see its total revenue decrease? Why?


4. Until the 1980s, AT&T held a monopoly over the national market for phone services. Suppose that AT&T argued that it was a natural monopoly, because the fixed cost of creating a nationwide phone network generated huge economies of scale, and that there was therefore no welfare loss associated with its monopoly. Counter this argument by explaining how even a natural monopoly causes deadweight loss.

5. Explain why an oligopolist (with few competitors) pays more attention to what its competitors are doing than a producer in a competitive market (with many competitors) does.


6. Given that the market for smartphones is inefficient, explain why consumers of smartphones might not want the price to be regulated.