econ ch 14 outline - Kristin Chen ECON CH 14Monopoly 1...

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Kristin Chen ECON CH 14–Monopoly 1. Types of Market Structure a. 4 principle models of market structure: perfect competition, monopoly, oligopoly, monopolistic competition b. Based on 2 dimensions i. The numbers of producers in the market—one, few, or many ii. Whether the goods offered are identical or differentiated (goods that are different but considered somewhat substitutable by consumers) c. Monopoly – single producer sells a single, undifferentiated product d. Oligopoly –few producers sell products that may be either identical or differentiated e. Perfect competition –many producers sell an identical product Fig 14.1 2. The Meaning of Monopoly a. Monopolist = a firm that is a sole supplier of a good that has no close substitutes b. Monopoly = industry controlled by a monopolist i. Most extreme departure from perfect competition c. Monopolists move up the demand curve by reducing quantity supplied at which quantity produced is lower and price is higher than under perfect competition d. Market power = the ability of a producer to raise prices e. Monopolists reduce output and raise price compared to perfectly competitive industry levels is to generate profit in the short & long run 3. Why Do Monopolists Exist? a. To earn profits, a monopolist must be protected by barriers to entry = something that prevents other firms from entering the industry b. Control of a scarce resource or input c. Economies of scale i. In an industry characterized by economies of scale, larger companies are more profitable & drive out smaller ones d. Natural monopoly = a monopoly created and sustained by economies of scale i. Exists when economies of scale provide a large cost advantage to having all of industry’s output produced by a single firm ii.
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