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Econ103part07 - Part 7 Monopoly Many markets are dominated...

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Part 7 Monopoly Many markets are dominated by a single seller with market power The economic model of “pure monopoly” deals with an idealized case of a market with only one seller A monopoly has no competition and requires - No close substitutes - Barriers to entry Barriers to entry can be legal, natural (economies of scale), or created by the monopoly itself (limit pricing, predatory pricing)
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Natural Monopoly Natural monopoly arises due to economies of scale over outputs that are large relative to the size of the market D LAC $ Q
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Monopoly Pricing As the only firm in the market the monopoly faces the market demand curve To sell more means lowering the price – Monopoly is constrained by the demand conditions Single price monopoly – sells all units at the same price Price discriminating monopolist – sells different units at different prices (must be restrictions on resale)
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Single Price Monopoly Faces the market demand curve and can has to sell all units at the same price D P Q P Q’ P’ P” Q” Q What happens to P x Q as price is reduced?
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Revenue Curves for a Single Price Monopolist D = AR P Q E = 1 E > 1 E <1 $ Q TR (P x Q) TR max MR MR = ΔTR/ΔQ $
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