lecture16

lecture16 - 1 Econ 1 Winter 2008 RATIKA NARAG Ph.D LECTURE...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: 1 Econ 1, Winter 2008 RATIKA NARAG, Ph.D. LECTURE 16 Imperfect competition means that some firms have some market power Market Power: A firm’s ability to change prices without losing or gaining all demand The extreme is pure monopoly – One seller for a product with no close substitutes – Seller has a lot of control over price – There are barriers to entry that protect the seller from competition LECTURE 16 Barriers to Entry: Economies of Scale – Hard for new firms to compete with larger, established firm – Natural monopoly – economies of scale are so big that there is room for only one firm (Public utilities) Ownership of Raw Materials/Patents (DeBeers) Public Franchises – Governments grant exclusive rights to sell (Highway rest-stops) Licensing – Entry into the industry regulated by govt./professional organization (American Medical Association; patents) LECTURE 16 Firms with market power must decide: – how much to produce – how to produce it – how much to demand in each input market – what price to charge for their output LECTURE 16 The Monopoly Model – Sellers are price makers – Buyers are price takers – Barriers to entry (Entry into the industry is completely blocked) LECTURE 16 Market Structure under Monopoly – Many buyers – One Seller – No close substitutes for the firm’s product – Well informed buyers – Barriers to entry 2 LECTURE 16 Price and Output Decisions in Pure Monopoly Markets – In a monopoly market, there is no distinction between the firm and the industry because the firm is the industry – The market demand curve is the demand curve facing the firm, and total quantity supplied in the market is what the firm decides to produce LECTURE 16 Demand Curve facing a Monopolist – Market Demand = Firm Demand – Law of Demand: Market Demand is downward sloping – Firm Demand is downward sloping – MR curve is downward sloping LECTURE 16 The Absence of a Supply Curve in Monopoly – A monopoly firm has no supply curve that is independent of the demand curve for its product – A monopolist sets both price and quantity LECTURE 16 Example: O u tp u t p e r m o n th P rice p e r u n it ($) T o ta l R e ve n u e p e r m o n th ($) M a rg in a l R e ve n u e ($) 40 1 35 35 35 2 30 60 25 3...
View Full Document

This note was uploaded on 04/16/2008 for the course ECON 1 taught by Professor Nagata during the Winter '08 term at UCLA.

Page1 / 6

lecture16 - 1 Econ 1 Winter 2008 RATIKA NARAG Ph.D LECTURE...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online