FS08EC2106_L15

FS08EC2106_L15 - CHAPTER 15 Monopoly Economics PRINCIPLES...

Info iconThis preview shows pages 1–9. Sign up to view the full content.

View Full Document Right Arrow Icon
C H A P T E R Monopoly E conomics P R I N C I P L E S O F ECON 2106-C Prof. B-C Kim 15
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
In this chapter, look for the answers to these questions: ± Why do monopolies arise? ± Why is MR < P for a monopolist? ± How do monopolies choose their P and Q ? ± How do monopolies affect society’s well-being? ± What can the government do about monopolies? ± What is price discrimination? 1
Background image of page 2
MONOPOLY 2 Introduction ± A monopoly is a firm that is the sole seller of a product without close substitutes. ± In this chapter, we study monopoly and contrast it with perfect competition. ± The key difference: A monopoly firm has market power , the ability to influence the market price of the product it sells. A competitive firm has no market power.
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
MONOPOLY 3 Why Monopolies Arise The main cause of monopolies is barriers to entry – other firms cannot enter the market. Three sources of barriers to entry: 1. A single firm owns a key resource. E.g. , DeBeers owns most of the world’s diamond mines 2. The govt gives a single firm the exclusive right to produce the good. E.g. , patents, copyright laws
Background image of page 4
MONOPOLY 4 Why Monopolies Arise 3. Natural monopoly : a single firm can produce the entire market Q at lower cost than could several firms. Q Cost ATC 1000 $50 Example: 1000 homes need electricity Electricity slopes downward due to huge FC and small MC is lower if one firm services all 1000 homes than if two firms each service 500 homes. 500 $80
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
MONOPOLY 5 Monopoly vs. Competition: Demand Curves In a competitive market, the market demand curve slopes downward. But the demand curve for any individual firm’s product is horizontal at the market price. The firm can increase Q without lowering P , so MR = P for the competitive firm. D P Q A competitive firm’s demand curve
Background image of page 6
MONOPOLY 6 Monopoly vs. Competition: Demand Curves A monopolist is the only seller, so it faces the market demand curve. To sell a larger Q , the firm must reduce P . Thus, MR P . D P Q A monopolist’s demand curve
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
A C T I V E L E A R N I N G 1 A monopoly’s revenue 7 QPT RA RM R 0 $4.50 14 . 0 0 23 . 5 0 33 . 0 0 42 . 5 0 52 . 0 0 61 . 5 0 n.a. Common Grounds is the only seller of cappuccinos in town. The table shows the market demand for cappuccinos.
Background image of page 8
Image of page 9
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 02/08/2011 for the course ECON 2106 taught by Professor Minjaesong during the Fall '06 term at Georgia Tech.

Page1 / 31

FS08EC2106_L15 - CHAPTER 15 Monopoly Economics PRINCIPLES...

This preview shows document pages 1 - 9. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online