Chapter 15

Chapter 15 - Due to the different allocation of resources...

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Chapter 15: Monopoly - Price maker - Gov interventions to prevent from being too powerful - Remains a monopoly due to BARRIERS TO ENTRY Barriers to entry - Key resource owned by single firm ex. One person owns all the gold in china - Gov’s exclusive rights * patent/copyrights = incentive but HIGH pricing - More efficient production than competition Natural monopoly: the supplier with the most efficient economies of scale *ex water supplier: it is inefficient to build two supporting infrastructures for transporting water The size of the market can transform a monopoly to a competitive market
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- has a downward slope - average revenue = price - marginal revenue is less than price is due to a downward sloping demand curve, in order to sell more units, all the units must be priced lower MR can even be negative as a decline in price increases q, but results in a decline of TOTAL REVENUE Profit maximazation: MR = MC Profit = (P-ATC) *Q
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Unformatted text preview: Due to the different allocation of resources (than purely competitive) it results in DEADWEIGHT LOSS Social efficient quantity where demand intersects marginal cost Price higher and quantity lower than efficient point. Not a social problem, just a different distribution. Problem IS producing too little quantity + DWL Public Policies towards Monopolies-Increasing competition with antitrust laws (wont let them become too big)-Pros: not too much power Con: doesnt synergize-Gov. regulations of price, subsidize if P < ATC to P=ATC *Problem of MC pricing: 1) losses 2)Lost of incentive to reduce cost-Price discrimination : different pricing to differ groups maximizes revenue Ex. Paperback vs Hardcover-Can eliminate DWL, gains in the form of producer surplus ! Since everyone gets the good at a differ. $-2 nd Degree: quantity discount 3 rd Degree: cheaper for kids/seniors...
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This note was uploaded on 04/02/2010 for the course AGEC 200 taught by Professor Anwarnaseem during the Spring '10 term at McGill.

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Chapter 15 - Due to the different allocation of resources...

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