CHAPTER 13 - CHAPTER 13 MONOPOLY I Monopoly How It Arises a...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
CHAPTER 13: MONOPOLY I. Monopoly & How It Arises a. Monopoly-a market with a single firm that produces a good or service for which no close substitutes exist, and that is protected by a barrier that prevents other firms from selling that good or service b. How Monopoly Arises b.i. Has no close substitutes b.ii. Barrier to entry-a constraint that protects a firm from potential competitors b.ii.1. Natural barrier to entry b.ii.1.a. Creates natural monopoly-economies of scale enable one firm to supply the entire market at the lowest possible cost b.ii.2. Ownership Barrier to Entry b.ii.2.a. One firm owns a significant proportion of a key resource b.ii.3. Legal Barrier to Entry b.ii.3.a. Creates a legal monopoly-a market in which competition and entry are restricted by the granting of a public franchise, government license, patent, or copyright b.ii.3.b. Public franchise-an exclusive right granted to a firm to supply a good or service b.ii.3.c. Government license- controls entry into particular occupations, professions, and industries (doesn’t always create a monopoly, but does restrict competition) b.ii.3.d. Patent- exclusive right granted to the inventor of a product or service b.ii.3.e. Copyright-exclusive right granted to the author, composer of a literary, musical, or artistic work c. Monopoly Price-Setting Strategies c.i. Monopoly sets its own price c.ii. Single Price Monopoly-a firm that must sell each unit of its output for the same price to all customers c.iii. Price discrimination-sells different units of a good or service for different prices II. A Single-Price Monopoly’s Output & Price Decision a. Price and MR
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
a.i. The demand curve facing the firm is the market demand curve a.ii. TR=PxQ a.iii. MR=ΔTR÷ΔQ sold a.iv. At each level of output, MR is less than P—MR curve lies below the demand curve b. MR & Elasticity b.i. Demand=Elastic 1% in Price, brings a greater than 1% Quantity demanded b.i.1. b.ii. Demand=Inelastic 1% in Price, brings a less than 1% in Quantity demanded b.ii.1. Fall in price brings a decrease in TR & MR- b.iii. Demand=Unit Elastic 1% in Price, brings a 1% in Quantity demanded b.iii.1. b.iv. In Monopoly, Demand is Always Elastic b.iv.1. Profit maximizing monopoly NEVER produces an output in inelastic range of the market D curve c. Price and Output Decision c.i. A monopoly sets its price and output at the levels that maximize economic profit c.ii. Faces the same types of technology and cost constraints as a
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

Page1 / 6

CHAPTER 13 - CHAPTER 13 MONOPOLY I Monopoly How It Arises a...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online