monoply - MONOPOLY Features of Monopoly Single seller of an...

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Unformatted text preview: MONOPOLY Features of Monopoly Single seller of an unique product No close substitutes Price Maker- firm has control over price Barriers to entry Why monopolies arise? Barriers to entry are restrictions on the entry of new firms into an industry Legal restrictions-licenses and patents Economies of scale Control of an essential resource- De- beers owns most of the diamond mines Natural monopolies NATURAL MONOPOLIES A monopoly sometimes emerges naturally when a firm experiences economies of scale as reflected by the downward- sloping, long-run average cost curve In these situations, a single firm can sometimes supply market demand at a lower average cost per unit than could two or more firms at smaller rates of output The monopolist can choose either the price or the quantity, but choosing one determines the other Because the monopolist can select the price that maximizes profit, we say the monopolist is a price maker More generally, any firm that has some control over what price to charge is a price maker Competition vs monopoly: Monopoly Is the sole producer Faces a downward sloping demand curve Is a price maker Reduces price to increase sales Competition Many producers Faces a horizontal demand curve Is a price taker Sales cannot affect price Profit maximization for a monopolist: The demand curve for the monopolist is...
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monoply - MONOPOLY Features of Monopoly Single seller of an...

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