Week 8 Lecture - ECON1001 Week 8 Monopoly Topic Outline...

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ECON1001 Week 8 Monopoly
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2 Topic Outline Define monopoly and explain the conditions under which it arises. Explain how a single-price monopolist determines its price and output Compare the performance and efficiency of competition and monopoly Explain how a price-discriminating monopolist determines its price and output Comment on the policy issues associated with monopoly
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3 How Monopoly Arises A monopoly is an industry comprised of a single firm. No close substitute exists for the firm’s product The firm is protected from competition by a barrier preventing the entry of new firms. Because a monopolist has no close competition It has market power – the ability to affect price
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4 How Monopoly Arises No Close Substitutes If a good has close substitutes, it faces competition from the producers of the substitute. Barriers to Entry Barriers to entry are legal or natural constraints that protect a firm from potential competitors. A barrier to entry is any cost that must be incurred by a new entrant that incumbents do not bear.
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5 Barriers to Entry Legal Barriers to Entry In a legal monopoly competition and entry is restricted by the granting of: a public franchise Australia Post Telstra? government license Taxis Medicine and dentistry patent, or copyright.
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6 Barriers to Entry Natural Barriers to Entry A firm may have sole ownership of resources required for production
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7 Natural Monopoly A natural monopoly results from a situation in which one firm can supply the entire market at a lower cost than two or more firms Ie there are substantial economies of scale Example: Electric utility Cheaper for one supplier to supply whole market than two or more suppliers
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8 ATC Quantity (millions of kilowatt-hours) 5 10 15 Natural Monopoly 0 1 2 3 4 D Price (cents per kilowatt-hour) ATC of four suppliers is 0.15 per KwH ATC of two suppliers is 0.15 per KwH ATC of one  supplier is 0.05 per KwH
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9 Monopoly Price- Setting Strategies A single-price monopolist is a firm that must sell each unit of its output for the same price. Price discrimination is the practice of selling different units of a good or service for different prices. Haircuts Movie theatres Used car sales Utility bills
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10 Single-Price Monopoly The firm’s demand curve is the entire market demand curve. Marginal revenue is not the same as the
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This note was uploaded on 09/06/2011 for the course ECON 1001 at University of Sydney.

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Week 8 Lecture - ECON1001 Week 8 Monopoly Topic Outline...

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