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85-handout-1 - 23/10/2010 Monopoly Price and Output A2...

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23/10/2010 1 Monopoly Price and Output A2 Microeconomics Monopoly price and output The constraints on a monopolist Monopoly and economic efficiency Key Issues The meaning of monopoly power Monopoly price and output equilibrium How monopoly may affect economic welfare and economic efficiency Allocative and productive efficiency Dynamic efficiency X inefficiency / external diseconomies of scale How monopoly power may benefit consumers Economies of Scale Natural monopoly arguments The arguments for and against reducing monopoly power through competition policy
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23/10/2010 2 Market concentration The concentration ratio is a way of measuring monopoly power A five firm ratio adds together the market share of the leading five firms in the market The higher the concentration ratio the The higher the concentration ratio the stronger is the hold on the market held by the leading businesses Example: UK Grocery Market Tesco 30.8 Asda (Walmart) 16.8 Sainsburys 16.2 Waitrose 4.2 Morrison / Safeway 11.4 Marks and Spencer 3.5 Kwik Save 2.6 Iceland 1.9 Co-Op / Somerfield 5.9 Market share in 2010
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23/10/2010 3 Monopoly demand A pure monopolist can take market demand as its own demand curve The firm is a price maker but a monopoly cannot charge a price that the consumers in the market will not bear The elasticity of the demand curve acts as a constraint on the pricing-power of the monopolist Assuming that the firm aims to maximise profits (where MR=MC) Price and output equilibrium Price MC AC Monopoly Profit AR P1 AC Output MR Q1
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4 A rise in demand Price MC AC P1 AC P2 Output AR1 MR1 Q1 MR2 AR2 Q2 Welfare Loss under Monopoly Competitive Market
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This note was uploaded on 02/08/2012 for the course ECO 51844 taught by Professor Sabet during the Spring '11 term at FIU.

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85-handout-1 - 23/10/2010 Monopoly Price and Output A2...

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