chapter 12 market structure with market power(1)

chapter 12 market structure with market power(1) - Chapters...

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Unformatted text preview: Chapters 12: Managerial Decisions for Firms with Market Power Market Power is ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ___ Any firm that faces downward sloping demand has _________________________________________________ It gives the firm the ability to raise price above average cost & earn economic profit (if demand & cost conditions permit) Monopoly is a market that consists of a • ____________________________________________________________________________ ____________________________________________________________________________ • ____________________________________________________________________________ ____________________________________________________________________________ • ____________________________________________________________________________ ____________________________________________________________________________ • ____________________________________________________________________________ • ____________________________________________________________________________ Example: in most cities government-owned or regulated public utilities –gas and electric companies, the water company, the cable company, and the telephone company-are all monopolies or virtually so. There are no close substitutes for services provided by these public utilities. Measurement of Market Power • Degree of market power is _____________________ related to price elasticity of demand • The less elastic the firm’s demand, the ____________________ its degree of market power • The fewer close substitutes for a firm’s product, the _____________________ the elasticity of demand (in absolute value) & the ________________________ the firm’s market power • When demand is __________________________________ (demand is horizontal), the firm has no market power Sources of market power : Common Entry Barriers- Conditions that make it difficult for new firms to enter a market in which economic profits are being earned • Economies of scale Modern technology in some industries is such that efficient, low-cost production can be achieved only if producers are extremely large both absolutely and in relation to the market. Where economics of scale are very significant, a firm’s long’s long-run average-cost will decline over a wide range of output. When long-run average cost declines over a wide range of output relative to demand for the product, there may not be room for another large producer to enter market...
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This note was uploaded on 08/30/2011 for the course MGE 302 taught by Professor Isse during the Fall '08 term at SUNY Buffalo.

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chapter 12 market structure with market power(1) - Chapters...

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