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Pure Monopoly CHAPTER TWENTY-FOUR PURE MONOPOLY CHAPTER OVERVIEW This chapter is divided into six basic sections: the characteristics of pure monopoly; the barriers to entry that create and protect monopolies; price and output determination under monopoly; the economic effects of monopoly; price discrimination under monopoly; and the regulation of monopolies. The discussion of barriers to entry states at the outset that these barriers may occur to some extent in any form of imperfect competition, not just in a pure monopoly. The concept of a natural monopoly is addressed in this section. Building on the analysis of the preceding chapter, the discussion of price-output decision making by monopoly firms points out that the marginal-revenue—marginal-cost rule still applies. Emphasis here is on the major difference between the determination of marginal revenue in pure competition and in pure monopoly. The misconceptions about monopoly pricing behavior are presented as well as a comparison of efficiency in pure competition and pure monopoly. This section ends with a discussion of effects of monopoly power in the U.S. economy and some policy alternatives. The case of price discrimination and its effects are discussed along with the conditions necessary for it to occur. At the end of the chapter, the basic issues involved in the regulation of public service monopolies are reviewed. WHAT’S NEW The theoretical material remains intact, but the examples have been revised, especially as they pertain to developments in the Microsoft legal battles. A “Consider This” box on price discrimination has been added. It appeared previously in the “Analogies, Anecdotes, and Insights” section of the website. A new end-of-chapter question on price discrimination has been added. INSTRUCTIONAL OBJECTIVES After completing this chapter, students should be able to 1. List the five characteristics of pure monopoly. 2. Explain the difference between a “pure” monopoly and a “near” monopoly. 3. List and give examples of the four barriers to entry. 4. Describe the demand curve facing a pure monopoly and how it differs from that facing a firm in a purely competitive market. 5. Compute marginal revenue when given a monopoly demand schedule. 6. Explain why the marginal revenue is equal to the price in pure competition but not in monopoly. 7. Determine the price and output level the monopoly will choose given demand and cost information in both table and graphic form. 8. Discuss the economic effects of pure monopoly on price, quantity of product produced, allocation of resources, distribution of income, and technological progress. 70
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Pure Monopoly 9. Give examples of how new technology has lessened monopoly power.
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This note was uploaded on 05/04/2011 for the course ECON 102 taught by Professor Gini during the Spring '11 term at Salt Lake Community College.

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