Chapter 10 PowerPoint Slides - Monopoly

Chapter 10 PowerPoint Slides - Monopoly - Monopoly and...

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Monopoly and Other Forms of Imperfect Competition Chapter 10
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Types of Imperfect Competition Monopoly Single firm supplying a unique product with high barriers to entry Monopolistic Competition Large number of firms selling a similar but not homogeneous product (products are substitutes). Barriers to entry are low. Oligopoly A few large firms supply the market. Product may be homogeneous or differentiated. Barriers to entry are high.
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Imperfectly Competitive Markets Firms in imperfect competition have some control over the price they charge and are thus called price setters or price makers Firms in imperfect competition have some control over price because they face a downward sloping demand curve. These firms are said to have some market power
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Monopoly Monopolized markets remain monopolies because there are barriers to entry and they enjoy market power. Barriers to entry include: Control of Essential Resources Patents and Copyrights Government Licenses or Franchises Network Economies Economies of Scale (Natural Monopolies)
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Barriers to Entry/Sources of Market Power Control over essential resources in the production of a good or service can create a monopoly. Alcoa had a monopoly on aluminum production for about 30 years because it controlled the supply of bauxite, a key resource in aluminum production. DeBeers has a monopoly on diamonds because it owns the largest diamond mines in the world.
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Barriers to Entry/Sources of Market Power Patents give firms exclusive rights to produce a good or service for 20 years. Patents are provided to stimulate innovation in products and processes. Copyrights are similar to patents and protect authors of movies, software, music, books and other published works Licenses are provided by the government which give firms exclusive rights to provide a product or service.
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Barriers to Entry/Sources of Market Power Government licenses give firms exclusive rights to provide a good or service (radio and tv signals) Government franchises , such as the companies that are granted the right to sell concessions in the national parks, also constitute monopolies.
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Barriers to Entry/Sources of Market Power Network economies occur when a product or technology becomes widely adopted, forcing others out of the market VHS versus Beta Microsoft Windows
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Barriers to Entry/Sources of Market Power Economies of scale can create a natural monopoly (e.g. electricity production) This happens when a single firm can cover market demand at a lower average cost per unit that two or more firms can. Achieving minimum efficient scale in the industry requires that a firm provide a high level of output, so that two or more smaller firms can never achieve economies of scale.
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Fixed and Marginal Costs in Start-Up Fixed costs = $200,000 Marginal Costs = $0.80 per unit Firm produces 1 million units
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This note was uploaded on 04/30/2008 for the course ECO 2306 taught by Professor Mencken during the Fall '07 term at Baylor.

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Chapter 10 PowerPoint Slides - Monopoly - Monopoly and...

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