businessstructures - Monopoly Absolute monopoly occurs when...

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Monopoly Absolute monopoly occurs when a single seller provides a product with no close substitute . Sources : 1. Legal Monopoly : based on patents, copyright, license… 2. Nationalized industry : post, railway, telecom… 3. Local monopoly : one gas station, cafeteria 4. Natural monopoly : based on economies of scale. 5. High cost of entry : LRAC 6. Advertising and product differentiation : Barbie dolls 7. Import restrictions : Indian car industry (till 90s) 8. Industry ‘standard’ : Microsoft as PC standard Monopoly Profits : Y P MC D C E AC X A D=AR B MR A – Profit maximising (MC = MR) B – Maximum Revenue (MR = 0) C – Lowest cost of prduction (optimum output – MC = AC) D – Social optimum (MC = P) E – Normal Profit (AC = AR) XY = Abnormal profit (above AC curve at Production point P ) Note : - Monopoly is able to earn super-normal profits even in the long-term b/c of barriers to entry. - Will not produce at most efficient output MC=AC - Instead will produce less and charge more . (MC = MR) Against Public Interests : A. High prices - Less consumer surplus – Net welfare loss B. Less output - Less employment - Inefficient resource allocation - Barriers to entry
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- ‘natural’ monopolies have barriers to entry in the form of large economies of scale and high fixed costs. - ‘artificial’ monopolies have them as price discrimination, limit pricing, suppression of competition. C.
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This note was uploaded on 08/18/2011 for the course INFS 1000 taught by Professor Dr.kairiemer during the Three '10 term at University of Sydney.

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businessstructures - Monopoly Absolute monopoly occurs when...

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