econchap15 - Monopoly Chapter 15 Monopoly While a...

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

View Full Document Right Arrow Icon
1 Chapter 15 Monopoly Monopoly s While a competitive firm is a price taker , a monopoly firm is a price maker . s A firm is considered a monopoly if . . . b it is the sole seller of its product. b its product does not have close substitutes. s Barriers to Entry WHY MONOPOLIES ARISE s Barriers to entry have three sources: b Ownership of a key resource. b The government gives a single firm the exclusive right to produce some good. b Costs of production make a single producer more efficient than a large number of producers. Government-Created Monopolies s Governments may restrict entry by giving a single firm the exclusive right to sell a particular good in certain markets. s Patent and copyright laws are two important examples of how government creates a monopoly to serve the public interest. Natural Monopolies s An industry is a natural monopoly when a single firm can supply a good or service to an entire market at a smaller cost than could two or more firms. s A natural monopoly arises when there are economies of scale over the relevant range of output. Figure 1 Economies of Scale as a Cause of Monopoly Quantity of Output Average total cost 0 Cost
Background image of page 1

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

View Full DocumentRight Arrow Icon
2 HOW MONOPOLIES MAKE PRODUCTION AND PRICING DECISIONS s Monopoly versus Competition b Monopoly s Is the sole producer s Faces a downward-sloping demand curve s Is a price maker s Reduces price to increase sales b Competitive Firm s Is one of many producers s Faces a horizontal demand curve s Is a price taker s Sells as much or as little at same price Figure 2 Demand Curves for Competitive and Monopoly Firms Quantity of Output Demand (a) A Competitive Firm’s Demand Curve (b) A Monopolist’s Demand Curve 0 Price Quantity of Output 0 Price Demand Since a monopoly is the sole producer in its market, it faces the market demand curve. A Monopoly’s Revenue s Total Revenue b P × Q = TR s Average Revenue b TR / Q = AR = P s Marginal Revenue b TR / Q = MR A Monopoly’s Revenue s A Monopoly’s Marginal Revenue b A monopolist’s marginal revenue is always less than the price of its good. s
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 02/16/2009 for the course ECON 2106 taught by Professor Trandel during the Winter '07 term at University of Georgia Athens.

Page1 / 7

econchap15 - Monopoly Chapter 15 Monopoly While a...

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