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19+monopolyHandout - Market Structure u Competitive Market...

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1 Market Structure u Competitive Market u everybody small u homogeneous product u no barriers to entry u Monopoly u single producer of a good u no close substitutes u barriers to entry Causes of Market Power u competition - large number of firms can be supported at minimum efficient scale ATC Firm q ATC Market demand very large relative to efficient firm quantity Q = (# firms) · q u economies of scale - cost conditions u compare market demand to size of efficient production Q P Market D Market Q Competitive S (LR) u natural monopoly - ATC is declining and minimum efficient scale bigger than the market Market demand small relative to efficient firm quantity Causes of Market Power u economies of scale - cost conditions u compare market demand to size of efficient production u monopoly - demand supports only one large firm ATC Firm q (efficient) Q P Market D
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