Ch 11_Presentation - PAM 200 Intermediate Microeconomics...

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PAM 200 Intermediate Microeconomics Chapter 11 Chapter 11 Monopoly and Monopsony
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Chapter 11 2 Monopoly While a competitive firm is a price taker , a monopoly 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. 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 (franchises, patents, national monopolies etc) Costs of production make a single producer more efficient than a large number of producers (decreasing cost industries, natural monopoly).
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Chapter 11 3 Monopoly versus Competition Monopoly Is the sole producer Faces a downward-sloping demand curve Is a price maker Reduces price to increase sales Competitive Firm Is one of many producers Faces a horizontal demand curve Is a price taker
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Chapter 11 4 A Monopoly’s Revenue Total Revenue: P × Q = TR Average Revenue: TR/Q = AR = P Marginal Revenue: P Q P Q P Q P Q Q P Q TR MR < + = + = =
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Chapter 11 5 Revenues for a Monopolist A monopolist’s marginal revenue is always less than the price of its good. The demand curve is downward sloping.
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Ch 11_Presentation - PAM 200 Intermediate Microeconomics...

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