Monopoly

Profit Maximization

Setting MR equal to MC for maximum profit.

Marginal Revenue (MR)

Additional revenue from selling one more unit.

Demand Curve

Graph showing relationship between price and quantity.

Welfare Effects

Impact of monopoly on overall economic well-being.

Quantity Effect

Change in total revenue from selling one more unit.

Price Effect

Decrease in total revenue from lowering price for all units.

Monopolist's Demand Curve

Downward-sloping curve faced by a monopolist.

Marginal Cost (MC)

Cost of producing one additional unit of output.

Total Revenue

Total income from sales before costs are deducted.

Higher Price

Monopolist charges more than competitive market price.

Lower Quantity

Monopolist produces less than competitive market output.

Positive Profit

Monopolist earns profit unlike competitive firms in long run.

Inefficiency

Loss of economic efficiency in production or allocation.

Constant Marginal Cost

Marginal cost remains the same regardless of output.

Monopoly Price

Price set by monopolist above competitive equilibrium.

Market Demand Curve

Total demand for a product at various prices.

Monopolist's Production Restriction

Deliberately limiting output to maintain high prices.

Figure 27-1

Illustration comparing competitive firm and monopolist behavior.

Figure 27-2

Graph showing profit-maximization for a monopolist.

Panel (a) Competition

No profit, total surplus equals consumer surplus.

Panel (b) Monopoly

Higher price, lower quantity, deadweight loss visible.

Monopolist

A single seller controlling market supply.

Output (QM)

Quantity produced by the monopolist.

Price (PM)

Price charged by the monopolist for QM.

Profit Area

Area representing monopolist's earnings above costs.

Total Surplus

Sum of consumer surplus and producer surplus.

Marginal Revenue

Additional revenue from selling one more unit.

Perfect Competition

Market structure with many sellers and buyers.

Barriers to Entry

Features making it hard for new competitors.

Economic Profits

Positive profits attracting new firms to an industry.

Monopoly

Market structure with a single seller dominating.

Control of a Scarce Resource

Exclusive access to essential production inputs.

Technological Superiority

Advanced technology giving a firm competitive edge.

Sabotaging Competitors

Actions to undermine rivals' market position.

Predatory Pricing

Setting low prices to eliminate competition.

Network Externalities

Value increases as more consumers use a product.

Patents

Temporary exclusive rights to inventions.

Copyrights

Legal protection for creative works.

Natural Monopoly

Industry where one firm can supply efficiently.

Increasing Returns to Scale

Cost advantages as production increases.

Government Policies

Regulations to prevent monopolistic control.

Price Ceiling

Maximum price set by regulators for monopolies.

Regulatory Capture

Industry influence over regulatory agencies.

Temporary Monopoly

Limited duration of exclusive market rights.

Market Entry

Process of new firms entering an industry.

Long Run

Period where firms can enter or exit markets.

Monopolist Actions

Strategies to maintain market dominance.

Sole Control

Exclusive ownership over a resource or market.

Experience Advantage

Benefit from accumulated knowledge and skills.

Lobbying

Influencing government decisions through advocacy.

Infrastructure Duplication

Unnecessary replication of facilities by firms.

Consumer Benefit

Advantage gained by consumers from larger firms.

Investment Recovery

Recouping costs from initial investments.

Barrier to Entry

Obstacles preventing new competitors from entering a market.

Federal Law on Copyright

Prohibits free downloading of copyrighted music.

Price Discrimination

Charging different prices to different consumers based on willingness to pay.

Monopolist's Incentive

To charge high prices and restrict output.

Consumer Surplus

The difference between what consumers are willing to pay and what they actually pay.

Deadweight Loss

Loss of economic efficiency when equilibrium is not achieved.

Perfect Price Discrimination

Charging each customer their maximum willingness to pay.

Elasticity of Demand

Sensitivity of quantity demanded to price changes.

Business Travelers

Customers with lower price elasticity of demand.

Advance Purchase Restrictions

Lower prices for customers buying well in advance.

Volume Discounts

Lower prices for purchasing larger quantities.

Two-Part Tariffs

Flat fee plus per-unit fee for purchases.

Sales and Outlet Stores

Regular sales events and distant outlet locations.

Coupons

Discounts for consumers willing to use them.

Digital Personalized Pricing

Prices adjusted based on shopper's personal information.

Welfare Implications of Price Discrimination

Improves efficiency but reallocates surplus to firms.

Market Power

Ability of a firm to influence prices and output.

Strategies for Sabotaging Competitors

Methods used by firms to undermine rivals.

Rationales Against Eliminating Barriers

Concerns about market stability and competition.

Rationales For Eliminating Barriers

Encourages competition and innovation in the market.

Hydroelectric Power Plant

Single provider of electricity in a remote area.

Local Port Facilities

Control of supply routes by a single business owner.

Consumer Benefits from Price Discrimination

Discounts for consumers who couldn't afford higher prices.

Ambiguity of Price Discrimination

Mixed opinions on its overall benefits or drawbacks.

Strategies for Price Discrimination

Techniques used to segment customers and maximize profits.

Reallocation of Surplus

Transfer of economic benefits from consumers to firms.