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CHARACTERISTICS OF MONOPOLY 1. SINGLE SELLER 2. UNIQUE PRODUCT 3. IMPOSIBBLE ENTRY - Ownership of a vital resource - Legal Barriers - Economies of Scale
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NATURAL MONOPOLY an industry in which the long-run average cost of production declines throughout the entire market. As a result, a single firm can supply the entire market demand at a lower cost than two or more smaller firms
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NETWORK GOOD A good that increases in value to each user as the total number of users increases. As a result a firm can achieve economies of scale
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PRICE AND OUTPUT DECISIONS FOR A MONOPOLIST PRICE MAKER - is a firm that faces a downward sloping demand curve - this means a monopolist has the ability to select the products price
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MARGINAL REVENUE, TOTAL REVENUE AND PRICE ELASTICITY OF DEMAND The demand and marginal revenue curves of the monopolists are downward sloping, in contrast to the horizontal demand and corresponding marginal revenue curves facing the perfectly competitive firm The monopolist always maximizes profit by
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Unformatted text preview: producing at a price on the elastic segment of its demand curve MONOPOLIST FACING A SHORT RUN LOSS-No protection against changes in demand or cost condition MONOPOLY IN THE LONG RUN-the entry of new firms into the industry drives the products price down until profit reach zero PRICE DISCRIMINATION • the practice of a seller charging different prices for the same product that are not justified by cost differences CONDITIONS FOR PRICE DISCRIMINATION • the seller must be a price maker and therefore face a downward sloping demand curve • The seller must be able to segment the market by distinguishing between consumers willing to pay different prices • It must be impossible or too costly for customers to engage to arbitrage. • ARBITRAGE – the practice of earning a profit by buying a good at a lower price and reselling the good at a higher price COMPARISON BETWEEN PERFECT COMPETITION AND MONOPOLY...
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  • Spring '17
  • Julius Bambico

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