CHAPTER_13

CHAPTER_13 - CHAPTER 13 MONOPOLY 1 What is Monopoly 1...

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1 CHAPTER 13: MONOPOLY 1. What is Monopoly? 1. Single seller, the opposite of perfect competition. Total control, no close substitute for the good and services. 2. Demand for the monopoly is the market demand. 2. How Monopoly arises? -- 3. Monopoly Price-Setting Strategies Single price monopoly Price discriminating monopoly 4. A Single-Price Monopoly’s Output and Price Decision 0. Price and Marginal Revenue 0. Marginal Revenue and Elasticity 1. In Monopoly, Demand Is Always Elastic 2. Price and Output Decision 3. 4. Efficiency Comparison 1. Redistribution of Surpluses 0. Rent Seeking, Rent-Seeking Equilibrium 5. Price Discrimination 9. Capturing Consumer Surplus 2. Profiting by Price Discriminating 10. Perfect Price Discrimination 11. Efficiency and Rent Seeking with Price Discrimination 5. Monopoly Regulation 4. Efficient Regulation of a Natural Monopoly 12. Marginal cost pricing rule 13. Second-Best Regulation of a Natural Monopoly 14. average cost pricing rule 1.What is Monopoly? A monopoly is a market: That produces a good or service for which no close substitute exists In which there is one supplier that is protected from competition by a barrier preventing the entry of new firms. A monopoly has two key features:
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1 a) No close substitutes . The absence of any firms making close substitutes allows the monopolist to avoid competition in the market. b) Barriers to entry . Legal or natural constraints that protect a firm from potential competitors are called barriers to entry . a) Legal barriers to entry create a legal monopoly , a market in which competition and entry are restricted by the granting of: i) Public franchise . The exclusive right granted to a firm to supply a good or service is called a public franchise . For example, Canada Post has a public franchise to deliver first-class mail. ii) Government license . The government controls entry into particular occupations, professions and industries by requiring a government license. For example, a license is required to practice law. Licensing doesn’t always create a monopoly, but it does restrict competition. iii) Patent and copyright . A patent is an exclusive right granted to the inventor of a product or service. A copyright is an exclusive right granted to the author or composer of a literary, musical, dramatic, or artistic work. Because these rights can be sold, patents and copyrights don’t always create a monopoly, but they do restrict competition. b)
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CHAPTER_13 - CHAPTER 13 MONOPOLY 1 What is Monopoly 1...

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