Chapter 15 Notes - -higher profits-results in deadweight...

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Chapter 15 Notes Monopoly- one firm is the sole seller of a good- caused by barriers to entry Barriers to entry -resource owned by a single firm -government regulation ie. patents -cost of production make one producer more efficient than many natural monopoly-any circumstance where a higher number of firms leads to a lower output for each firm and a higher ATC relative to when one firm produces a large amount -deals w/ economies of scale monopolies demand curves are the market demand curves monopolists marginal revenue are always less that the price of their product -b/c of downward sloping demand curve -output and price effects intersection of MR and MC curves is profit maximization point -corresponding point on demand curve shows the price this occurs at MC>MR reduce production for optimum profit MC<MR increase production for optimum profit In monopolies price>MC=MR Profit=(P-ATC) X Q See picture of page 321 Monopolies produce at quantities below and prices above the equilibrium point
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Unformatted text preview: -higher profits-results in deadweight social loss b/c its inefficient-price wedge similar to taxes, resulting profits to monopoly Ways a government can break up a monopoly-try to make the monopolized industry more competitive-regulate the monopolistic producers directly-common w/ natural monopolies-turning a private monopoly into a public enterprise Sherman and Clayton Anti-trust Acts Reduced competition of monopolies tempered by synergies When ATC is declining, MC is less that ATC, so in a natural monopoly to regulate prices to MC=MR efficiency point in a monopoly poses problems b/c ATC would be above price When monopoly prices are regulated there is less incentive to lower costs Price discrimination-think books-Arbitrage-Price discrimination can reduce deadweight social loss-perfect price discrimination-no deadweight loss, producer gets all of market surplus...
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