Week 5 - Week5 22:11 Monopoly SchillerChapter23...

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Week 5 22:11 Monopoly Schiller Chapter 23 Is a firm that produces the entire market supply of one good Demand curve for monopoly is identical to demand curve Firm Vs. Industry Demand Market Power o Ability to alter the market price of a good or service Monopoly Price Monopoly receives larger profits than a comparable competitive industry by  reducing the quantity supplied and pushing prices up Price Discrimination o Sale of identical good at different prices to different consumers by a single  seller Downward-sloping demand curve o Firms with market power confront downward-sloping curve o Competitive firms face horizontal demand curves Price and marginal Revenue o Monopoly faces different profit situation Get MOST MONEY Profit-maximization Rule
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Marginal Revenue = Marginal Cost o Competitive Firms Marginal Revenue = Price Marginal Revenue o Change in total revenue that results from one unit increase in quantity sold Change in total revenue/ change in quantity sold Profit Maximization o Intersection of MC and MR = Profit max Profit = o Price – Average Total Cost Total Profits = Profit per unit x quantity Monopolies can drive prices up and reduce quantity Entry Barriers o Preservation of monopoly power depends on keeping other competitors  out of market o Patents:  offers a producer 20 years of rights to a product o Monopoly franchises:  governments create and maintain monopolies by  giving a single firm the exclusive right to supply one particular good or  service o Control of key inputs:  a company may lock out cometition by securing  exclusive access to key inputs o Lawsuits:  may be use to prevent new companies from entering an  industry o Acquisition:  when all else fails, buy out competitor
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This note was uploaded on 04/20/2011 for the course ECON 11 taught by Professor Abob during the Spring '11 term at UC Irvine.

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Week 5 - Week5 22:11 Monopoly SchillerChapter23...

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