kf009 - KafuWong 1 (Recap marketprice. thatprice...

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1 Ka-fu Wong University of Hong Kong Monopoly and Other Forms of  Imperfect Competition
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2 The Perfectly Competitive Firm Is a Price Taker  (Recap) The perfectly competitive firm has no influence over the  market price.  It can sell as many units as it wishes at  that price. Typically, a “perfectly” competitive industry is one that  consists of a large number of sellers, each of which  makes a highly standardized product.
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3 Profit-maximization for the perfectly competitive  firm Profit = Total revenue - total cost Q. How much output should a perfectly competitive firm produce if its  goal is to earn as much profit as possible? A. It should keep expanding output as long as the marginal benefit of  doing so exceeds the marginal cost. The marginal benefit of expanding output by one unit is the  market price. The marginal cost of expanding production by one unit is the  firm's marginal cost at its current production level.
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4 Example 10.1 . If this grower can sell as many bushels of corn as he  chooses to at a price of $5 per bushel, how many  bushels should he sell in order to maximize profit? Marginal cost of producing corn Price $/bushel Thousands of bushels/year 6 5 4 6 9 12 The profit-maximizing quantity for the perfectly  competitive firm is the one for which price =  MC.
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5 Imperfect Competition Monopoly  = "single seller"     Oligopoly  = "few sellers" Monopolistic competition Many sellers, each with a  differentiated product
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6 Monopoly  = “single seller” Towngas  ( The Hong Kong and China Gas  Company Limited)  supplies cooking fuel to  households in Hong Kong An electronic payment system using a contactless  smartcard.  The sole supplier of electricity in Kowloon and  New Territories.  The sole  supplier of electricity on Hong Kong Island. 
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7 Oligopoly  = “few sellers” Six  mobile service  providers  in Hong  Kong
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8 Monopolistic competition: Convenience stores
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9 Five Sources of Monopoly 1. Exclusive control over important inputs   Perrier’s mineral spring
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10 Five Sources of Monopoly 2. Economies of Scale  (Natural monopoly) The average cost of production declines as the number  of units produced increases. Example: domestic cooking fuel
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11 Five Sources of Monopoly 3. Patents  Example: Prescription drugs
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12 Five Sources of Monopoly 4. Government licenses or franchises Example: Postal services 
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13 Five Sources of Monopoly 5. Network Economies Example: Microsoft Windows
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14 Five Sources of Monopoly 5. Network Economies Sony Playstation library: Over 1000 games that will not  play on other formats
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15 Five Sources of Monopoly 5. Network Economies Network economies may be thought of as a kind of 
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