ch10 - Chapter 10 Monopoly Entry barriers Marginal and...

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Chapter 10 – Monopoly Entry barriers Marginal and Average revenue for a SINGLE price monopolist o Example Profit maximization for a single price monopolist o Exercise 10.1 : Monopoly profit maximization o Exercise 10.2 : Diagram for a single price monopolist Price discrimination Cartels o Exercise 10.3 : Cartel diagram Entry barriers Types of entry barriers Economies of scale barriers make entry unprofitable either due to high AC (small scale entry) OR low P (large scale entry) Government created barriers make entry illegal . e.g., patents (drugs), copyright (books) e.g., franchises (Canada Post). Firm created barriers make entry unprofitable by raising entrant costs by denying access to inputs or distribution lowering entrant revenues by predatory pricing or advertising brand proliferation Maria Gallego EC120 – Ragan and Lipsey --Chapter 10 – Monopoly page 1 of 12
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increasing MES by increasing advertising. Maria Gallego EC120 – Ragan and Lipsey --Chapter 10 – Monopoly page 2 of 12
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Entry barriers Effects of entry barriers Allow existing firm(s) to earn positive profits without attracting entry. Give entrants the incentive to replace existing firms by innovating ( creative destruction ) MR AND AR for a SINGLE price monopolist
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