Econ Final Review Sheet[1] - Econ Final Review Sheet...

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Econ Final Review Sheet Monopoly : situation where there is a single seller of any product in a given area Reasons : 1. Patents (*strongest), copy rights, trademarks Ex : Pharmaceutical, drugs have Patent Rights Copy Rights : very long period of time Trademarks : identifiable phrase, word to distinguish from other products 2. Government Franchise : authorization from some level of government which specifies that this company provides this product in this area Ex : Cable TV, U.S. Postal Service, public utilities 3. Control of a resource or productive process a. Ex : DeBeers Corporation: control amount of distribution of diamonds per year b. Ex : Rockefeller: refinery for gasoline, diesel fuel, ect. 4. “Natural” Monopoly : product is cheaper for one company to manufacture and deliver product than if there was competition Ex : Distribution of electric power Difference in Monopoly vs. Perfect Competition Demand Curve
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Monopoly Perfect Competition 1. P = ATC 1. P > ATC 2. MR = MC 2. MR = MC 3. P = MC 3. P > MC * monopolistic approach NOT efficient* Key Formulas: P > ATC P < AVC MR = MC P = MC *achieve “goal”* Monopoly 1. Barriers to entry 2. Single seller, no competition 3. Homogeneous product Short and Long Run Diagram Firms in Perfect Competition = Price Takers
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Firms in Monopoly = Price Makers Price Discrimination: when any type of business has any type of monopoly control, perfect monopoly, occurs when different groups of consumers end up paying different prices for the same good when there is no difference in the production cost Ex: Senior Citizen discount on Tuesdays *Designed to enhance profits* 1. Segment of the market a. Ex : age, ethnics, students, military 2. Seal the segments : consumers in market A can’t interact with consumers in market B 3. The price elasticity of demand in the different segments has to be different a. If product has a lot of substitutes = relatively elastic
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