lecture 11

lecture 11 - EC 1 UCLA Dr. Bresnock Lecture 11 Pure...

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EC 1 UCLA Dr. Bresnock Lecture 11 Pure Monopoly : Price and Output Determination Remember these pure monopoly characteristics : (1) Single Seller -- “The firm is the industry.” (2) No Close Substitutes -- Unique product. (3) “Price Maker” -- Firm has power to determine price on its own. (4) Significant “Barriers to Entry” -- See examples below. (5) Goodwill Advertising Only -- Typically public service or educational ads. Note : Examples of “pure monopoly” are few. Public utilities are government-owned, or regulated monopolies. Even something like DeBeers diamond syndicate controls 70% rather than the entire diamond supply. Most monopolies tend to be “dominant firm” monopolies in which one firm has a substantial market share relative to the remaining firms (often referred to as the “competitive fringe” and composed of many, small firms). Examples of “dominant firm monopolies” include: Gillette, 70% of razor blade sales; Xerox, 75 – 80% of electrostatic copier revenues, etc. However, about 5 – 6% of economic activity is conducted under conditions that are similar to “pure monopolies”. Our study of the “pure monopoly” will show us the general differences between purely competitive and imperfectly competitive market structures, such as oligopoly and monopolistic competition. The latter two market structures combine characteristics of pure competition and pure monopoly in differing degrees. “Barriers to Entry” -- Economic, technological, legal or geographic factors that block, or inhibit, other firms from entering an industry. With a “pure monopoly”, the “barriers to entry” are complete and entry is totally blocked. With other imperfectly competitive market structures, “barriers to entry” are present but to a lesser degree. Examples of “barriers to entry” include: (1) Economies of Scale -- technology that leads to efficient, low-cost production is often achieved by producers that are larger, incumbent firms that control substantial
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This note was uploaded on 07/05/2011 for the course ECON 1 taught by Professor Nagata during the Spring '08 term at UCLA.

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lecture 11 - EC 1 UCLA Dr. Bresnock Lecture 11 Pure...

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