10_Producer3-Monopolies & Oligopoly_

10_Producer3-Monopolies & Oligopoly_ - Firms: Price...

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1 Firms: Price Searchers Monopolies & Oligopolies (Section 10) I. Monopoly Monopoly - The only seller of a good or service that does not have a close substitute. Examples (Do non-government sponsored monopolies exist?) Monopolies need high barriers to entry A. Why barriers to entry may be high 1. Economies of scale 2. Government licensing & other legal barriers to entry 3. Patients 4. Control over an essential resource
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2 B. Characteristics of a monopoly Monopoly : 1. Single seller (with no close substitutes) 2. High barriers to entry C. Price & output under a monopoly 1. In general: what do monopolists do to maximize profits? Graph 1 : Graph 2 :
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3 2. A numerical example (A mythical cable company): Price Quantity Total Revenue Marginal Revenue Total Cost Marginal Cost $17 3 $56 $16 4 $63 $15 5 $71 $14 6 $80 $13 7 $90 $12 8 $101 Fill in the missing spaces in the table If the cable company wants to maximize profits, what price should it charge and how many cable subscriptions per month should it sell? How much profit will it make? Suppose the government imposes a $2.50 per month tax on cable companies. Now what price should the cable company charge, how may subscriptions should it sell, and what will its profits be? D. Monopolies in the real world
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4 II. Oligopoly Oligopoly - A small number of sellers Characteristics of an oligopoly 1. Small number of rival firms 2. Interdependence among firms (one firm’s decision will affect other firms 3. Substantial economies of scale 4. High barriers to entry Exs : Automotive industry: Economies of scale? Barriers to entry?
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This note was uploaded on 12/27/2011 for the course ECON 201 taught by Professor Staff during the Fall '08 term at Wisc Whitewater.

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10_Producer3-Monopolies & Oligopoly_ - Firms: Price...

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