disc10 - DISCUSSION SECTION 10 Monopoly (continued)...

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Unformatted text preview: DISCUSSION SECTION 10 Monopoly (continued) Monopoly is an industry with one producer of a good that has no close substitutes. Market power is the ability of a producer to raise prices (without losing its entire demand) Reasons for the existence of Monopoly: (1) Control of a scarce resource or input (2) Economies of scale (IRS): ATC always falls as output increases. So existing firms tend to grow larger and they have a cost advantage over any potential entrant. A monopoly created and sustained by economies of scale is called a natural monopoly . (3) Technological superiority (4) Government-created barriers (patterns, copyrights) --------------------------------------------------------------------------------------------------------------------- QUESTION 1 Suppose the market for Olympic-quality Frisbees has a linear demand curve of the form Q = 1,000 2P (so the inverse demand is P = 500 Q/2) and that the costs of a monopoly Frisbee producer are given by TC = 0.5Q 2 + 10,000 (a) What is the level of output that maximizes the monopolist profits? What is the price that the (a) What is the level of output that maximizes the monopolist profits?...
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disc10 - DISCUSSION SECTION 10 Monopoly (continued)...

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