ch09_condensed - Micro 101, Chapter 9 1 Chapter 9: Monopoly...

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Micro 101, Chapter 9 1 Chapter 9: Monopoly Main objectives: 1. Define what constitutes a monopoly - pure monopoly: only one seller of a good/service with no close substitutes 2. Describe types of barriers to entry that allow monopolies to develop and persist (a) a “natural monopoly” might exist if there are economies of scale (decreasing ATC curve) even in range of very large Q - once an established firm is producing lots of output, it is producing at a low cost per unit - a new firm would produce at a lower output and a higher cost per unit, so it can’t win a price war (b) a firm might control some scarce input ex. decades ago, Alcoa produced all aluminum in U.S. because it owned nearly all deposits of bauxite (c) gov’t may create barriers to entry ex. patents (purpose is to encourage R&D) (d) superior entrepreneurs? Ex. Henry Ford, Bill Gates 3. Describe goals and constraints of a monopolist - main point: cannot charge whatever they want! - but they are “price-makers” instead of “price-takers” - still choose Q where MR=MC, but mark price up above MC 4. Explain why a monopolist faces a downward-sloping demand curve for its product - faces entire market D curve - to sell more output, must lower P (unlike competitive firms) 5. Given a downward-sloping demand curve, recall why MR < P for an extra unit sold
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Micro 101, Chapter 9 2 6. Learn how to find a monopolist’s equilibrium P and Q 7. Compare the monopoly outcome with perfect competition - if a monopolist bought up a set of competitive firms, it would maximize profits by reducing output and raising price - but technology might change as well, affects cost curves 8. Analyze effects of changes in costs or demand - increase in variable costs partially passed on to consumers - increase in fixed costs usually absorbed by firm (doesn’t affect MR or MC) 9.
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This note was uploaded on 03/26/2008 for the course ECON 101 taught by Professor Brentkreider during the Spring '07 term at Iowa State.

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ch09_condensed - Micro 101, Chapter 9 1 Chapter 9: Monopoly...

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