Section_Six_08 - Section Six Pure Monopoly Weve now...

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Unformatted text preview: Section Six Pure Monopoly Weve now discussed the first of the four industry models perfect competition. Perfect competition is at one extreme end of the continuum of industry models. At the other end of the continuum is our next model pure monopoly. Characteristics of Pure Monopoly Pure monopoly defined: A single firm is the sole producer of a product for which there are no close substitutes Characteristics: single firm, product with no close substitutes, firm as price maker barriers to entry The first two characteristics are fairly self-explanatory. Lets discuss these last two a little further. Monopolistic firm as price searcher/maker Since the monopolistic firm is the only firm in the industry, its supply is the total supply of the industry. Therefore, any changes in output by the firm will impact market price of the product. The firm is able to artificially create shortages or surpluses to affect market price by changing production since it controls the entire markets supply. This firm will search for the output level that will allow the market price that provides the most profit and will produce at that level (covered more later). Barriers to Entry A main characteristic of pure monopoly is that entry barriers are sufficiently great to block completely all potential competition entry barriers are those things that prevent others from starting a business in the same industry as the monopolistic firm there are three general groups of barriers: 1. Economies of Scale We learned about economies of scale in section four. Recall that it is the greater efficiency, and four....
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This note was uploaded on 03/12/2011 for the course ECON 2011 taught by Professor Deluth during the Fall '08 term at University of Minnesota Morris.

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Section_Six_08 - Section Six Pure Monopoly Weve now...

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