CHAPTER 15 - CHAPTER 15: MONOPOLY 1. What is a Monopoly? A...

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CHAPTER 15: MONOPOLY 1. What is a Monopoly? A monopoly is a market with a single seller of a product with no close substitutes. Monopolies are PRICE MAKERS. That is, they not only choose the quantity, but also the price. Nonetheless, the monopolist still is limited by the market demand. 2. Why Do Monopolies Arise? Monopolies arise when there are barriers to entry in a particular market. These barriers can vary depending on the nature of the monopoly. In particular, there are 3 sources of barriers to entry: a) Monopoly of resources : These emerge when a key resource is owned by a single firm, i.e. DeBeers owns 80% of the diamond rings constituting a monopoly. b) Government created monopolies : They take place when the government gives exclusive rights to produce to one company or to one person. I.e. copyright laws and patents give the holder the right to use a particular product for a limited time. c) Natural monopolies: When a single firm can produce a particular good or service at a smaller cost than could two or more firms. Generally, they are characterized by:
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This note was uploaded on 12/16/2010 for the course ECON 102 taught by Professor Clague during the Fall '08 term at San Diego State.

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CHAPTER 15 - CHAPTER 15: MONOPOLY 1. What is a Monopoly? A...

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