Economics 10a Chapter Notes - Chapter 15: Price Discrimination, Monopoly Profit, Sherman Antitrust Act
Monopoly (summary pg. 324)
Chapter 15
ā Competitive firm= price taker, īMonopoly= īprice maker
ā Monopoly:
ā a firm that is the sole seller of product without close substitutes
ā remains the only seller in its market because other firms cannot enter the market
and compete with it
ā chargers a price that exceeds the MC
ā Barriers to entry:
ā Monopoly resources:
ī
Ownership of a key resource.
ā Government Regulation:
ī
The government gives a single firm the exclusive
right to produce some good.
ā The Production Process:
ī
a single firm can produce output at a lower cost
than other producers
ā Government Created Monopolies
ā Gov may restrict entry by giving a single firm exclusive rights to sell a good
ā Patent and copyright laws are two examples of Gov creating a monopoly
ā Natural Monopolies
ā a monopoly that arises because a single firm can supply a good or service to an
entire market at a smaller cost than could two or more firms
ā arises when there are economies of scale over the relevant range of output
ā when a firmās ATC curve continually declines, the firm has a natural monopoly
ā Monopoly versus Competition
Monopoly
Competitive Firm
Sole producer
one of many producers
faces a downward sloping demand
curve
faces a horizontal demand curve
price maker
price taker
reduces price to increase sales
sells as much or as little at same price
ā A Monopolyās Revenue (table on pg. 305)
ā Total Revenue= īP x Q = TR
ā Average Revenue= īTR / Q = AR = P
ā Marginal Revenue= īchange in TR / change in Q = MR
ā MR is always īless than īthe price of its good
Document Summary
Competitive firm= price taker, monopoly= price maker. A firm that is the sole seller of product without close substitutes. Remains the only seller in its market because other firms cannot enter the market and compete with it. Chargers a price that exceeds the mc. The government gives a single firm the exclusive right to produce some good. The production process: a single firm can produce output at a lower cost than other producers. Gov may restrict entry by giving a single firm exclusive rights to sell a good. Patent and copyright laws are two examples of gov creating a monopoly. A monopoly that arises because a single firm can supply a good or service to an entire market at a smaller cost than could two or more firms. Arises when there are economies of scale over the relevant range of output. When a firm"s atc curve continually declines, the firm has a natural monopoly.