Monopoly

characteristics (3)

1. one producer

2. price maker

3. high barriers to entry

what are some examples of high barriers to entry (4)

1. economies of scale

2. BRAND LOYALTY

3. legal barriers

4. ownership of key resources

short run can make what profits

normal abnormal losses

normal profit diagram

abnormal profits

losses diagram

where is revenue max point

MR = 0

where is profit max point

MC=MR, but also can make losses. will continue stay open bc variable costs are covered or losses are less than fixed costs amount

long run can earn what profits and why

abnormal, bc high barriers to entry

natural monopoly characteristics (3)

1. ONE firm can produce CHEAPER (lower costs) than other multiple firms through 2. ECONOMIES OF SCALE which creates 3. BARRIER OF ENTRY bc new entrants dont think can sell at a price that is competitive because cannot get near minimum efficient scale (mes)

natural monopoly diagram + explanation

has low ac bc high economies of scale and low marginal costs

how to regulate natural monopolies (2)

1. nationalization (buy firms but lack incentive)

2. price setting at MC or AC

advantages of monopoly (2)

1. economies of scale

2. profits for R+D

disadvantages of monopoly

1. allocative inefficiency see DWL

2. technical inefficiency

3. higher price lower output —> consumer surplus less

4. 
   

monopoly diagram dwl where explain

• Because they are profit maximizing, they produce where MR = MC

• However, the social optimum is where MC = AR

• In other words, the monopoly produces less than what's required so prices remain high

• This means there will be a higher price and lower quantity than what is optimal

what is monopoly diagram demand curve shape and why

steep and downwards slope bc firm=entire industry