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Class Notes - 11-16-07

Class Notes - 11-16-07 - 2 Licenses – In some cases the...

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Microeconomics – Class Notes – 11/16/07 CHAPTER #10 – MONOPOLY I. Characteristics of Monopoly A. One firm B. Unique Product 1. Price makers 2. The fact that monopolies can set their own price Market Power – A firm’s power to set its own price without losing its entire market share a. Whereas with competition, you would lose your market share C. Barriers to Entry New firms will be barred from entering this market that the monopoly holds Barriers will include anything that prevents entry 1. Typically high fixed costs are barriers in competitive markets . 1. First Barrier – Patents and copyrights a. Government restrictions that prevent the entry of new firms b. Patents usually have fixed time periods during which the patent is effective
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Unformatted text preview: 2. Licenses – In some cases the government will specifically pick who gets to produce a product and then gives that firm a license . a. Government sells/gives a license. A license is the sole right to production. b. FCC auctions off radio frequency 3. Firms attempt to erect barriers (could be illegal) a. Mergers to consolidate market power b. Illegal price strategies i. Price gouging – pricing goods below average variable cost, absorbing the losses, forces smaller firms to lower price to compete and they go out of business c. Professional certification i. Prevents certain people from entering the market for profession (doctor, dentist, lawyer, health care professional, etc.)...
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