EC120 Lecture 11: Monopolistic Competition
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EC120 Full Course Notes
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A monopoly is a firm that is the sole seller of a product without close substitutes: natural entry barriers, created entry barriers. One large firm produces more efficiently than small firms. Average total cost is downward sloping: utilities (water, sewers, cable television, land-line phones, bridges and road networks, manufacturing if markets are very small. Network effects: number of buyers increases demand (e. g. facebook, more people the better: technology operating systems, file formats, social networks, etc, these tend to be limited by technology. Patent laws, copyright laws: designed to promote certain outcomes, optimal length of patents/copyrights, efficiency versus equity. Exclusive business licenses: used in some developing countries, may be a form of government revenue. Firms set marginal revenue = marginal cost. For a monopolist: marginal revenue is not equal to price. To increase quantity must find new buyers (move along the demand curve) To find buyers, firms must lower prices. Total revenue is still price x quantity.
