Lecture 20 - Announcements MT2 is two weeks from today. It...

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Announcements MT2 is two weeks from today. It will go through chapter 10. 1 of 22
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Chapter 9 - Monopoly 2 of 38
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3 of 38 IMPERFECT COMPETITION AND MARKET POWER: CORE CONCEPTS imperfectly competitive industry An industry in which single firms have some control over the price of their output. market power An imperfectly competitive firm’s ability to raise price without losing all of the quantity demanded for its product. Imperfect competition does not mean that no competition exists in the market. In some imperfectly competitive markets competition occurs in more arenas than in perfectly competitive markets. Firms can differentiate their products, advertise, improve quality, market aggressively, cut prices, and so forth. But in one case, there truly is NO competition – a monopoly.
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4 of 38 IMPERFECT COMPETITION AND MARKET POWER: CORE CONCEPTS pure monopoly An industry with a single firm that produces a product for which: 1)there are, no close substitutes and 2) significant barriers to entry exist to prevent other firms from entering the industry to compete for profits.
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Monopoly 1. NO CLOSE SUBSTITUTES: Without close substitutes, a monopolist can raise its prices without fear of consumers switching to a substitute product. This gives the monopolist power over the price. The fewer substitutes there are, the steeper the demand curve and the more power the monopolist faces. 5 of 38
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6 of 38 IMPERFECT COMPETITION AND MARKET POWER: CORE CONCEPTS The ease with which consumers can substitute for a product limits the extent to which a monopolist can exercise market power. The more broadly a market is defined, the more difficult it becomes to find substitutes. DEFINING INDUSTRY BOUNDARIES The Boundary of a Market and Elasticity
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7 of 38 IMPERFECT COMPETITION AND MARKET POWER: CORE CONCEPTS barrier to entry Something that prevents new firms from entering and competing in imperfectly competitive industries. In order to maintain market power, the monopolist must be able to prevent other firms from entering this industry. If other firms enter, there is no longer a monopoly.
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Lecture 20 - Announcements MT2 is two weeks from today. It...

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