Dec 3, Monopoly - Monopoly Monopoly and Market Power While...

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Monopoly and Market Power While a competitive firm is a price taker, a monopoly firm is a price maker A firm considered is a monopoly if… o It is the sole seller of its product o Its product does not have close substitutes Why Monopolies arise? Barriers to Entry The fundamental cause of monopoly is barriers to entry . There are three sources of these barriers. o Ownership of a key resource o The government gives a single firm the exclusive right to produce some good or service. o Costs of production make a single producer more efficient than a large number of producers. Ownership of a key resource Water in a small town Although exclusive ownership of a key resource is a potential source of monopoly, in practice monopolies rarely arise for this reason. International trade, … Government-Created Monopolies Governments may restrict entry by giving a single firm the exclusive right to sell a particular good in certain markets. Patent and copyright laws are two important examples of how government creates a monopoly to serve the public interest. Example: drugs 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
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Dec 3, Monopoly - Monopoly Monopoly and Market Power While...

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