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Unformatted text preview: CHAPTER 15: MONOPOLY Key questions why some markets have only one seller how a monopoly determines the quantity to produce and the price to charge the effect of monopolists decision on economic well-being the various public policies aimed at solving the problem of monopoly why monopolies try to charge different prices to different customers 1. Why monopolies arise DEF : MONOPOLY: A firm that is the sole seller of a product without close substitutes. Fundamental source of monopoly: barriers to entry o A key resource is owned by single firm ex: DeBeers substantial influence over the market price of diamonds o Government gives a single firm the exclusive right to produce some good or service ex: a pharmaceutical company discovers new drug and apply to the government for a patent. Governments approval on the patent gives the company an exclusive right to sell the drug for 20 years. o Natural monopoly a single firm more efficient than a large number of producers ATC decreasing over the relevant rage of output:...
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