ECON FINAL REVIEW CH 25 - vacation as well as movies and...

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Chapter 25 Monopoly: a market structure characterized by 1) a single seller 2) who produced a well-defined product for which there are no good substitutes 3) that produces in a market with high barriers to entry Profits: to make a higher profit you can use price discrimination Assumptions about: there are bad economically but good for the seller Demand for the product: is high Example: Bubba Shrimp Monopoly Inefficiency of: not create competition…no advances in technology or other areas Barriers to Entry: keeping out potential competitors is paramount. Fortunately, if you are a monopolist, there are many effective ways to limit competition. Types of: 1) ownership of resources without close substitutes-the Aluminum company of at one time owned 90% of the world’s bauxite. 2) Problems in raising adequate capital 3) Economies of scale- low unit costs and prices drive out rivals 1) Licenses and franchises 2) Patents 3) Tariffs 4) Regulations Price Discrimination Examples: airlines selling higher for businessmen and lower for families going on
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Unformatted text preview: vacation as well as movies and food places. Definition: selling a given product at more than one price, with the difference being unrelated to differences in cost. Comparing PC to M : compared with PC, M fails on many fronts 1) A reduction in the competitiveness of market limits the options available to consumers. There is only one seller. 2) Prices are higher than under perfect competition. 3) When barriers to entry are high, consumers are less able to direct producers to server their interest- the signaling mechanisms destroyed. 4) Government grants of monopoly power will encourage rent seeking- Spending $ to keep monopoly instead of improving the product Understanding why D and MR differ for the price searcher Rent Seeking: government grants of monopoly power will encourage rent seeking o resources will be wasted by firms attempting to secure and maintain grants of market protection o Competition to become a monopolist...
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This note was uploaded on 03/19/2008 for the course ECON 004 taught by Professor Graf,pauledwin during the Spring '07 term at Pennsylvania State University, University Park.

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