eco11.1 - A monopoly is a firm that I the sole seller in a...

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•A monopoly is a firm that I the sole seller in a market. •It faces a downward-sloping demand curve for its product. •A monopoly’s marginal revenue is always below the price of its good. Inefficiency of Monopoly •The monopolist produces less than the socially efficient output, decreasing market activity •The deadweight loss caused by a monopoly is similar to the deadweight loss caused by a tax. •The difference between the two cases is that the government gets the revenue from a tax, whereas a private firm gets the monopoly profit max TS=CS+PS welfare loss = DWL+ monopolist power spending Government responds to the problem of monopoly in one of four ways —Making monopolized industries more competitive. —Regulating the behavior of monopolies. —Turning some private monopolies into public enterprises. —Doing nothing at all. Increasing Compettition with Antitrust Law •Two Important Antitrust Laws •Sherman Antitrust Act (1890) •Reduced the market power of the large and powerful “trusts” of that time period
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This note was uploaded on 04/20/2008 for the course ECON 304K taught by Professor Ledyard during the Spring '08 term at University of Texas.

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