Ch15 - &hapter ! 0onopoly In this chapter look...

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Unformatted text preview: &hapter ! 0onopoly In this chapter look for the answers to these questions$ :hy do monopolies arise" :hy is 67 # P for a monopolist" +ow do monopolies choose their P and Q " +ow do monopolies affect societys wellbeing" :hat can the government do about monopolies" :hat is price discrimination" 687858H Introduction $ monopoly is a firm that is the sole seller of a product without close substitutes ,n this chapter we study monopoly and contrast it with perfect competition 7he key difference! $ monopoly firm has market power the ability to influence the market price of the product it sells $ competitive firm has no market power 687858H Why Monopolies +rise 7he main cause of monopolies is barriers to entry other firms cannot enter the market 7hree sources of barriers to entry! $ single firm owns a key resource *V 'e%eers owns most of the worlds diamond mines 7he govt gives a single firm the exclusive right to produce the good *V patents copyright laws 687858H Why Monopolies +rise Natural monopoly ! a single firm can produce the entire market Q at lower cost than could several firms Q &ost &9( (xample! homes need electricity (lectricity &9( slopes downward due to huge /( and small 6( &9( is lower if one firm services all homes than if two firms each service homes 687858H Monopoly vs Competition$ Demand Curves ,n a competitive market the market demand curve slopes downward %ut the demand curve for any individual firms product is horizontal at the market price 7he firm can increase Q without lowering P so 6 $ P for the competitive firm D P Q competitive firms demand curve 687858H Monopoly vs Competition$ Demand Curves $ monopolist is the only seller so it faces the market demand curve 7o sell a larger Q the firm must reduce P 7hus 6 P D P Q $ monopolists demand curve $ & 7 , 9 ( / ( $ 5 1 , 1 * % + monopolys revenue Q P TR $R MR na &ommon *rounds is the only seller of cappuccinos in town 7he table shows the market demand for cappuccinos )ill in the missing spaces of the table :hat is the relation between P and $R " %etween P and MR " 687858H...
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This note was uploaded on 03/22/2011 for the course ECON 200 taught by Professor Ta during the Spring '07 term at University of Washington.

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Ch15 - &hapter ! 0onopoly In this chapter look...

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