Handout7-MonopolyTopics

Handout7-MonopolyTopics - Characteristics of a monopoly...

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Characteristics of a monopoly market Characteristic 1: One seller controls the price by controlling the amount of a good or service supplied to the market – a single business is the entire industry for a given market Characteristic 2: No close substitutes for the product or service Characteristic 3: Barriers to entry prevent competition and therefore permit a monopolist to earn a positive economic profit for as long as the monopoly condition exists
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The Price and Quantity Effect Components of Revenue Changes A reduction in price will lead to more sales: Revenue increase = new price x the increase in quantity sold due to the price reduction (new quantity – old quantity); the “quantity effect” (+) Revenue decrease = the amount of the decrease in price (new price – old price) x the previous quantity sold (or the buyers that were willing to pay the higher price); the “price effect” (-) Marginal revenue = sum of the quantity effect and price effect
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This note was uploaded on 10/30/2010 for the course MBA 520 taught by Professor Mr.bill during the Spring '10 term at Ill. Chicago.

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Handout7-MonopolyTopics - Characteristics of a monopoly...

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