Lecture 19 - Announcements HW for ch 8 due Thursday(its...

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Announcements HW for ch 8 due Thursday (it’s long!!) Exam 2 is two weeks from today
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Monopoly
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Monopoly: Setting the Scene imperfectly competitive industry An industry in which single firms have some control over the price of their output. market power An imperfectly competitive firm’s ability to raise price without losing all of the quantity demanded for its product. Imperfect competition does not mean that no competition exists in the market. Firms can differentiate their products, advertise, improve quality, market aggressively, cut prices, and so forth. The competition is just not “perfect” in the sense that all firms are not forced to charge the same price. But in one case, there truly is NO competition – a monopoly.
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pure monopoly An industry with a single firm that produces a product for which: 1)there are, no close substitutes and 2) significant barriers to entry exist to prevent other firms from entering the industry to compete for profits. Monopoly
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Monopoly 1. NO CLOSE SUBSTITUTES: Without close substitutes, a monopolist can raise its prices without fear of consumers switching to a substitute product. This gives the monopolist power over the price. The fewer substitutes there are, the less elastic the demand is and the more power the monopolist has. Similarly, the more essential a product is, the more power a monopolist has.
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Monopoly: Inelastic demand=More power
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7 of 38 IMPERFECT COMPETITION AND MARKET POWER: CORE CONCEPTS The ease with which consumers can substitute for a product limits the extent to which a monopolist can exercise market power. The more broadly a market is defined, the more difficult it becomes to find substitutes. DEFINING INDUSTRY BOUNDARIES The Boundary of a Market and Elasticity
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barrier to entry Something that prevents new firms from entering and competing in imperfectly competitive industries. In order to maintain market power, the monopolist must be able to prevent other firms from entering this industry. If other firms enter, there is no longer a monopoly. Because of such barriers, monopolists
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This note was uploaded on 12/20/2011 for the course ECON 2005 taught by Professor Zirkle during the Fall '07 term at Virginia Tech.

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Lecture 19 - Announcements HW for ch 8 due Thursday(its...

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