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Ch06 - Monopoly - Chapter6 Competition&Monopoly 1 Monopoly...

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1 Chapter 6 Competition & Monopoly
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2 Monopoly While a competitive firm is a price taker , a  monopoly firm is a price searcher . A firm is considered a monopoly   if . . . it is the sole seller of its product. its product does not have close substitutes.
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3 Why Monopolies Arise? The fundamental cause of monopoly is barriers  to entry.
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4 Why Monopolies Arise? Barriers to entry have three sources: a. Ownership of a key resource. b. The government gives a single firm the exclusive  right to produce some good. c. The production technology makes a single producer  more efficient than a large number of producers.
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5 Monopoly Resources Although exclusive ownership of a key resource  is a potential source of monopoly, in practice  monopolies rarely arise for this reason.
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6 Government-Created Monopolies Governments may restrict entry by giving a  single firm the exclusive right to sell a particular  good in certain markets. Legal monopoly
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7 Government-Created Monopolies Patent  and copyright  laws are two important  examples of how government creates a monopoly  to serve the public interest.
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8 Natural Monopolies An industry is a natural monopoly   when a single  firm can supply a good or service to an entire  market at a smaller cost than could two or more  firms.
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9 Natural Monopolies A natural monopoly  arises when there are  economies of scale over the relevant range of  output. What will happen if a new firm enters, and the  two firms share the market?
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10 Economies of Scale Quantity of Output Average total cost 0 Cost
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11 Monopoly Vs Competition Monopoly versus Competition Monopoly Is the sole producer Is a price searcher  Faces a downward-sloping (market) demand curve Has to reduce price to increase sales Competitive Firm Is one of many producers Is a price taker  Faces a horizontal demand curve Can sells as much or as little at the same price
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12 Demand Curves for Competitive  and Monopoly Firms Quantity of Output Demand (a) A Competitive Firm’s Demand Curve (b) A Monopolist’s Demand Curve 0 Price Quantity of Output 0 Price Demand
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13 A  
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