Lecture 6

Monopoly

A market structure served by only one firm.

Direct price regulation

regulation that the government set the price to dismantle a monopoly and encouraging new participants

Antitrust laws

law that promotes competitiveness and restrict collusion and price fixing

Barriers to Entry

Factors that prevent new firms from entering a market, allowing existing firms to maintain positive producer surplus.

Economies of scale

Average cost shrinks as output expands

Diseconomies of scale

Average cost increases as output expands

Natural Monopoly

A market structure where a single firm can produce the entire market output more efficiently at a lower cost.

Marginal revenue received by seller formula

MR = P + (ΔP/ΔQ) x Q

Switching Costs

Costs that consumers incur when changing from one supplier to another, which can create barriers to entry.

Network goods

a good that increases value to each consumer as the number of other consumers of the same product increases.

Product Differentiation

The process of distinguishing a product from others to make it more attractive to a specific target market.

Imperfect Substitutability

Consumers may not view products from different firms as identical even though they are the same.

Absolute Cost Advantages

Situations where a firm has lower costs than competitors due to control over key inputs or resources.

Marginal revenue derivation

Derived by doubling the demand slope or derivative of the total revenue.

Profit maximization condition

MR = MC

Government Regulation

Legal restrictions that limit entry into a market, such as patents and licensing requirements.

Marginal Revenue (MR)

The additional revenue a firm earns from selling one more unit of a product.

Lerner Index

A measure of a firm's markup to the marginal cost, indicating the degree of market power it enjoys.

Lerner Index/Markup formula

L = [P - MC]/P = 1 / |E|

Price Discrimination

The practice of charging different prices to different consumers for the same product based on their willingness to pay.