ch10 - Chapter 10 Monopoly Entry barriers Types of entry...

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Chapter 10 – Monopoly Entry barriers Types of entry barriers Economies of scale barriers make entry unprofitable either due to… …high AC (small scale entry) …or low P (large scale entry) Government created barriers make entry illegal . e.g. patents (drugs), copyright (books) franchises (Canada Post). Firm created barriers make entry unprofitable by …raising entrant costs by… …denying access to inputs or distribution. …lowering entrant revenues by …predatory pricing or advertising brand proliferation …increasing MES by increasing advertising. Effects of entry barriers Allow existing firm(s) to earn positive profits without attracting entry. EC120 Chapter 10 – Monopoly page 1 of 13
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Give entrants the incentive to replace existing firms by innovating ( creative destruction ) EC120 Chapter 10 – Monopoly page 2 of 13
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monopolist If a monopolist sells all goods at the same price ( P ) …then AR = TR/Q = P × Q/Q = P Since a monopolist is the only seller then the… AR curve equals the market demand curve Since the market demand curve slopes downward. . …the monopolist must cut price to sell more …MR equals the new price less the revenue loss on existing units from cutting P. …MR < P MR curve lies below the AR curve D = AR Q Q O P N P A B P N = New price Q O = Existing units P = Price cut needed to sell additional units Q = Additional units ∆Τ R = __________________________ MR = ∆Τ R/ Q = __________________
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This note was uploaded on 11/17/2008 for the course EC 120 taught by Professor Zeiss during the Spring '08 term at Wilfred Laurier University .

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ch10 - Chapter 10 Monopoly Entry barriers Types of entry...

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