Chapter 10

Chapter 10 - • Excessive costs incurred because a firm is...

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Chapter 10- Monopoly MONOPOLY: firm that is the lone producer of a good for which there are no close substitutes o Concentrated power o Economic inefficiency o Inequitable income distribution o High entry and exit barriers o Lack close substitutes MARKET POWER: (price maker) firm’s ability to alter the price of its output because of inadequate competition or a lack of perfect substitutes for its products. Pure monopolist faces the entire market demand curve, which slopes down: pries are inversely related to quantity demanded. o Marginal revenue is always less than price (P > MR) o When output expands and prices are lowered, total revenue rises so demand is ELASTIC Area between ATC and demand curve is the LOSS
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Unformatted text preview: • Excessive costs incurred because a firm is not hard pressed by competitors is X-INEFFICIENCY • Rent seeking: when monopolies incur expenses to defend their monopoly positions such as advertising, political lobbying • Barriers to entry: obstacles that make it less profitable or more difficult for new firms to enter an industry o Regulatory barriers to entry are erected by government policies Patents and copyrights o Strategic barriers raise the costs of entry and result from the policies of existing firms in an industry o Natural barriers: arise when economies of scale are substantial relative to market demand and severely limit the number of rims in an industry...
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