outline-ch08 - Chapter 8: Monopoly and Other Forms of...

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Chapter 8: Monopoly and Other Forms of Imperfect Competition
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I. Imperfect Competition
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A. Price Taker v. Price Setter Perfectly Competitive Firm: A firm that must take the price in the market as a given – i.e. a Imperfectly Competitive Firm: A firm with at least some latitude to set its own price – i.e. a
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B. Forms of Imperfect Competition Pure Monopolist: A firm that is the only supplier of a unique product with no close Oligopolist: A firm that produces a product for which only a few rival firms produce close Monopolistically Competitive Firm: One of a large number of firms that produce slightly differentiated products that are reasonably close substitutes for
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An Essential Difference A Perfectly Competitive Firm faces a perfectly elastic demand curve for its product at the market Charging a higher or a lower price never increases a firm’s An Imperfectly Competitive Firm faces a downward-sloping Charging a price different from its competitors may be
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Fig. 8.1 The Demand Curves Facing Perfectly and Imperfectly Competitive Firms D D
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II. Market Power
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Market Power A firm has Market Power – i.e. it can raise the price of its output without “Market Power” does not mean that a firm can sell any quantity at any If price is raised, then quantity demanded falls – but only somewhat – i.e. the quantity demanded does not fall to the crucial issue is “how much does the quantity demanded fall for a given change in ?”
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Sources of Market Power Market power arises from factors that limit competition: Economies of Scale Natural Monopolies Declining costs mean largest firm can always undercut Example: electricity distribution Network Economies Compatibility with (& control over) established product standards gives - Example: Microsoft
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Sources of Market Power Exclusive Control over Patents and Copyrights Grant exclusive rights for a specified Promote monopoly but reward innovation Licenses or Franchises Government or
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III. Economies of scale
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Returns to Scale in Production Constant Returns to Scale in Production When all inputs are changed by a given proportion, output changes by the same Economies of Scale (Increasing Returns to
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This note was uploaded on 07/20/2009 for the course PHYS physics 10 taught by Professor Goatman during the Spring '08 term at The University of British Columbia.

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outline-ch08 - Chapter 8: Monopoly and Other Forms of...

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