Chapter 15 Lecture Outline - Economics 101H Vandan Desai...

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Economics 101H Vandan Desai P a g e | 1 Chapter 15: Monopoly (Lecture Outline) -------------------------------------------------------------------------------------------------------------------------- Monopolies have no close competitors and, therefore, can influence the market price of its product—making a monopoly firm a price maker Although monopolies can control the prices of their goods, their profits are not unlimited I. Why Monopolies Arise A. A firm is considered a monopoly if… i. It is the sole seller of its product ii. Its product does not have close substitutes B. The fundamental cause of monopoly is barriers to entry —a monopoly remains the only seller in its market b/c other firms cannot enter the market and compete with it C. Barriers to entry have three sources: i. Ownership of a key resource ii. The government gives a single firm the exclusive right to produce some good iii. Costs of production make a single producer more efficient than a large number of producers D. Monopoly Resources i. Single firm owns a key resource ii. Although exclusive ownership of a key resource is a potential source of monopoly, in practice monopolies rarely arise for this reason iii. Natural scope of market is often worldwide w/ large economies and resources owned by many people E. How much market power one firm has depends on the number of close substitutes for its product F. Government-Created Monopolies i. Governments may restrict entry by giving a single firm the exclusive right to sell a particular good in certain markets ii. Patent and copyright laws are two important examples of how government creates a monopoly to serve the public interest B/c these laws give one producer a monopoly, leads to higher prices Benefits of these laws— increased incentive for creative activity Costs of these laws— high pricing G. Natural Monopolies i. An industry is a natural monopoly when a single firm can supply a good or service to an entire market at a smaller cost than could two or more firms ii. Arises when there are economies of scale
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This note was uploaded on 10/31/2010 for the course ECON 202 taught by Professor - during the Fall '08 term at Community College of Baltimore County.

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Chapter 15 Lecture Outline - Economics 101H Vandan Desai...

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