Lecture14 - Objectives Monopolies Market Structure Perfect Competition 1 Free Entry/Exit 2 Perfect Information 3 Homogenous Products 4 Price taker

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Objectives Monopolies!!!!
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Market Structure: Perfect Competition 1. Free Entry/Exit 2. Perfect Information 3. Homogenous Products 4. Price taker – No Market Power 5. Efficient outcome 1. P=MR=MC 2. Long-run Economic Profit is Zero 3. Produce at the Minimum of the ATC
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Efficiency Recap In Production - Can’t produce more of one good without producing less of another - Need more inputs - On the Production Possibility Frontier In Economics - Can’t make one person better off without making another worse off
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Competition and Efficiency Along the demand curve D = MB the consumer is efficient. Along the supply curve S = MC the producer is efficient.
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Competition and Efficiency The quantity Q * and price P * are the competitive equilibrium values. So competitive equilibrium is efficient. The consumer gains the consumer surplus, and the producer gains the producer surplus.
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Market Structure: Monopoly - One producer supplying the entire industry - One supplier with no close substitutes - Face entire downward sloping demand curve - Barriers to entry (legal or natural) - Price setter - Demand for firms product is the entire market demand - Market power! The ability to influence the market (the market price) by influencing the total quantity offered for sale.
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Optimality Condition Produce where MR = MC, but charge the highest price the market will bear P Q MC D MR Q* P*
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Barriers to Entry - Legal 1. Public Franchise (US Postal Service) 2. Government License (practice law, medicine…) 3. Property Rights 4. Patents, Trademarks, Copyrights, Inventions, or Trade Secrets
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Natural barriers to entry create a natural monopoly , which is an industry in which one firm can supply the entire market at a lower price than two or more firms can. SRAC
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This note was uploaded on 04/10/2008 for the course ECON 001 taught by Professor Herman during the Spring '08 term at Georgetown.

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Lecture14 - Objectives Monopolies Market Structure Perfect Competition 1 Free Entry/Exit 2 Perfect Information 3 Homogenous Products 4 Price taker

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