Monopoly

Monopoly - Click to edit Master subtitle style Monopoly...

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Unformatted text preview: Click to edit Master subtitle style Monopoly Chapter 13 11 Course Outline { 9 3 B 6 C 7 D D -B 6 5 6 -4 5 9 7 -8 D A F -0 C 3 5 C 7 E 5 F C D 7 } Microeconomics troduction is Economics? Markets Work nd and supply tional Topics holds Choice Elasticity ncy and Equity t Actions in Markets s and Markets y and Demand references, and Choices onomic Problem put and Costs ct Competition onopoly istic Competition Oligopoly 22 Lecture Outline I. Sources of Monopoly Power II. A Single-Price Monopolys Output and Price Decision III. Single-Price Monopoly and Competition Compared IV. Price Discrimination V. Monopoly Regulation 33 Questions n Most of us use Microsoft Windows to run our computers. Microsoft isnt a price taker like the firms in perfect competition. q How does a firm like Microsoft decide the quantity to produce and/or the price to charge? n Students get lots of price breaksat the movies, hairdresser, and on the airlines. q Why? q How can it be profit maximizing to offer lower prices to some customers? 44 I. Market Power n Market power is the ability to influence the market, and in particular the market price, by influencing the total quantity offered for sale. n A monopoly is an industry that produces a good or service for which no close substitute exists and in which there is one supplier that is protected from competition by a barrier preventing the entry of new firms. 55 I. Market Power n How Monopoly Arises A monopoly has two key features: q No close substitutes q Barriers to entry n A constraint that protects a firm from potential competitors is called a barrier to entry . n The three types of barrier to entry are q Natural q Ownership q Legal 66 I. Market Power Entry Barriers (1) 77 q Natural barriers to entry create a natural monopoly , which is an industry in which one firm can supply the entire market at a lower price than two or more firms can. Figure 13.1 illustrates a natural monopoly. n Ownership Barriers to Entry q An ownership barrier to entry occurs if one firm owns a significant portion of a key resource. q During the last century, De Beers owner 90 percent of the worlds diamonds. q Reserves of Platinum (Anglo-American Corporation 75%) I. Market Power Entry Barriers (2) I. Market Power-Entry Barriers (3) q Legal barriers to entry create a legal monopoly , a market in which competition and entry are restricted by the granting of a: n Public franchise (like the U.S. Postal Service public franchise to deliver first-class mail) n Government license (like a license to practice law or medicine, 3G licenses) n Patent and copyright 99 I. Market Power n Monopoly Price-Setting Strategies q For a monopoly firm to determine the quantity it sells, it must choose the appropriate price....
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This note was uploaded on 06/16/2011 for the course ECON 110 taught by Professor Tan during the Spring '07 term at HKUST.

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Monopoly - Click to edit Master subtitle style Monopoly...

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