ECON20023 T1 2008 Lecture 6

ECON20023 T1 2008 Lecture 6 - ECON20023 ECONOMICS FOR...

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Based on slides from Layton et al ( 1 ECON20023 ECONOMICS FOR BUSINESS T1 2008 LECTURE 6 Galina Ivanova, CQU
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Based on slides from Layton et al ( 2 Key concepts What is a monopoly? How do monopolists make price and output decisions? What is price discrimination? Are resources misallocated in a monopoly? Comparing monopoly and perfect competition.
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Based on slides from Layton et al ( 3 The monopoly market structure Monopoly is characterised by: A single seller A unique product High barriers that make it difficult or impossible for other firms to enter the market. Ownership of a vital resource Licences and patents that create legal barriers to other entrants Economies of scale
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Based on slides from Layton et al ( 4 A natural monopoly An industry in which the long-run average cost of production declines throughout the entire range of output. This means a single firm can supply the entire market demand at a lower cost than two or more smaller firms.
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Based on slides from Layton et al ( 5 A natural monopoly (cont.)
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Based on slides from Layton et al ( 6 Examples of monopolies Monopolies can often be found in utilities such as power and water supply. Local monopolies (the only coffee shop on campus) are more common real-world approximations of the model than national or world market monopolies.
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Based on slides from Layton et al ( 7 Monopoly – price and output decisions The major difference between monopoly and perfect competition is the shape of the demand curve faced by the firm. Monopolists are price makers – they face a
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ECON20023 T1 2008 Lecture 6 - ECON20023 ECONOMICS FOR...

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