Chap009.2 - Patents and copyrights Government licenses or...

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2 Chapter 9: Monopoly and Other Forms of Imperfect Competition Slide 7 Imperfect Competition ± In perfect competition z Supply and demand determine equilibrium price. The firm has no market power. z At the equilibrium price, the firm sells all it wishes. Chapter 9: Monopoly and Other Forms of Imperfect Competition Slide 8 Imperfect Competition ± With imperfect competition z The firm has some control over price or some market power. z The firm faces a downward sloping demand curve. Chapter 9: Monopoly and Other Forms of Imperfect Competition Slide 9 The Demand Curves Facing Perfectly and Imperfectly Competitive Firms Quantity $/unit of output Quantity D Market price Price D Perfectly competitive firm Imperfectly competitive firm Chapter 9: Monopoly and Other Forms of Imperfect Competition Slide 10 Five Sources of Market Power ± Exclusive control over inputs
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Unformatted text preview: Patents and copyrights Government licenses or franchises Economies of scale (natural monopolies) Network economies Chapter 9: Monopoly and Other Forms of Imperfect Competition Slide 11 Economies of Scale and the Importance of Fixed Costs Firms with large fixed costs and low variable costs z Have low marginal costs z Average total cost declines sharply as output increases z Economies of scale will exist Chapter 9: Monopoly and Other Forms of Imperfect Competition Slide 12 Total and Average Total Costs for a Production Process with Economies of Scale Average cost ($/unit) Quantity Total cost ($/year) Quantity F Q F + Q TC = F + MQ Total cost rises at a constant rate as output rises ATC = F/Q + M M Average costs decline and is always higher than marginal cost...
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This note was uploaded on 02/20/2012 for the course ECON 202 taught by Professor Brightwell during the Spring '08 term at Texas A&M.

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