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Monopoly_1 - Monopoly Lecture 1 Connan Snider Econ 101...

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Monopoly Lecture 1 - Connan Snider Econ 101 January 4 2010
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Monopoly I A Monopoly is a single supplier of a market I How can a monopoly persist in the long run? I Recall the long run supply in the competitive model I Suppose there is one firm in the short run I Assume for now that the firm behaves competitively in the sense of price taking (we’ll show this isn’t the way an actual monopolist would behave soon) I Industry supply is then just the marginal cost curve of the firm
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Monopoly I What do we expect to happen in the long run?
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Monopoly I What do we expect to happen in the long run? I Other firms see there are positive profits to be had and enter the market I New firms will enter until profits are driven to zero,i.e. price = minimum ATC = MC.
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Monopoly I A Monopoly is a single supplier of a market I How can a monopoly persist in the long run? I Barriers to Entry are the source of all monopoly power I There are two general types of barriers to entry: 1. Technical barriers 2. Legal barriers
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Technical Barriers to Entry I Technical barriers to entry arise because production may exhibit decreasing marginal and average costs over a wide range of output I Economies of Scale I In some industries, large fixed costs mean that the large scale producers are the low cost producers I E.g. A cable company has to make a huge upfront investment to serve any customers but after the investment is made the marginal cost of an additional customer is small
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