Monopoly2 - MONOPOLY Sources of Market Power for a...

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    MONOPOLY
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    Sources of Market Power for a Monopolist Legal restrictions Control of critical resources  creates market power.  Government-authorized franchises , such as provided to  cable TV companies.  Economies of size  allow larger firms to produce at lower cost  than smaller firms.  Brand loyalty and extensive advertising  makes entry highly  expensive. Increasing returns in network-based businesses  compatibilities increase market penetration.
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    Characteristics of Monopoly – A monopoly is the only supplier of a good, and  substitutes for this good are highly imperfect. – Since the monopolist is the only supplier of the  good, the demand it faces is the market  demand, and is downward sloping
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    • The Essential Difference Between Perfectly  and Imperfectly Competitive Firms – The perfectly competitive firm faces a perfectly  elastic demand for its product. It is a Price  Taker – The imperfectly competitive firm has some  control over prices: it is a price setter and faces  a downward-sloping demand curve. 
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    The Demand Curves Facing Perfectly  and Imperfectly Competitive Firms Quantity $/unit of output Quantity D Market price Price D Perfectly competitive firm D=MR Imperfectly competitive firm D≠MR
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This note was uploaded on 04/07/2008 for the course ECON 2010 taught by Professor Devkota during the Spring '08 term at Rensselaer Polytechnic Institute.

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Monopoly2 - MONOPOLY Sources of Market Power for a...

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