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Unformatted text preview: When prices increase, the quantity supplied for each individual firm goes up. When a firm is maximizing costs, it is minimizing its costs. Different firms have different costs of production. Monopoly While a competitive firm is a price take , a monompoly firm is a price maker . A firm is considered a monopoly if-It is the sole seller of its product-Its product does not have close substitutes Why monopolies arise The fundamental cause of monopoly is barriers to entry . Barriers to entry have three sources: Ownership of a key resource The government gives a single firm the exclusive right to produce some good. Costs of production make a single producer more efficient than a large number or producers. An industry is a natural monopoly when a single firm can supply an entire market at a smaller cost than could two or more firms A natural monopoly arises when there are economies of scale over the relevant range of output....
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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 at Austin.
- Spring '08