Lecture 09 - Introductionto Economics Lecture9: Monopoly...

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© Gustavo Indart Slide 1 ECO 100Y Introduction to  Introduction to  Economics Economics Lecture 9: Lecture 9: Monopoly Monopoly
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© Gustavo Indart Slide 2 Characteristics of a Monopoly Characteristics of a Monopoly There is only one supplier of a commodity The commodity has no close substitutes There is a barrier to the entry of new firms 
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© Gustavo Indart Slide 3 Barriers to Entry Barriers to Entry Barriers to entry are  legal   or  natural   impediments  protecting a firm from competition from potential  new entrants  Legal barrier to entry Public franchise Government licence Patent  Natural barriers to entry  Unique source of supply of a raw material Economies of scale
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© Gustavo Indart Slide 4 Single-Price Unregulated  Single-Price Unregulated  Monopoly Monopoly Most monopolies are regulated by government We will examine the case of an unregulated  monopoly This will show why governments regulate  monopolies We will begin with the analysis of a single-price  monopoly That is, a monopoly that charges the same price for  each and every unit of its output
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© Gustavo Indart Slide 5 Short-Run Cost Schedule  Short-Run Cost Schedule  $ Q MC AC AVC We will assume that the  cost schedule  of a monopolist is similar to that of a  competitive firm, that is, mainly that the  average total cost curve  is  U- shaped
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© Gustavo Indart Slide 6 Demand Curve Facing a  Demand Curve Facing a  Monopolist Monopolist     P Q D What distinguishes a monopoly firm  from a firm that operates under  perfect competition is the firm’s  demand curve.  Since in a monopoly there  is only one firm, the  demand curve facing that  firm is the industry demand  curve.
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© Gustavo Indart Slide 7 The Monopolist’s Revenue Functions The Monopolist’s Revenue Functions Total Revenue  (TR): TR = P*Q Average Revenue   (AR):            TR       P*Q AR =         =            = P             Q          Q Marginal Revenue  (MR):                   TR        (P*Q)       P Q + QΔP                  ΔP  MR =            =                =                         = P + Q               Q            Q                  Q                           Q Note that the  market 
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Lecture 09 - Introductionto Economics Lecture9: Monopoly...

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