chapter 8 (monopoly)

monopolist

a firm that is the only producer of a good that has no close substitutes

Monopoly

industry controlled by a monopolist

Market power

ability of a firm to raise prices.

monopolist reduces output and raises price.

barrier to entry

to earn economic profits a monopolist must be protected by this

something that prevents other firms from entering the industry

5 principle types of barrier to entry

1. control of a scare resource or input

2. increasing returns to scale

3. technological superiority

4. network externalities

5. government created barriers

natural monopoly

when increasing returns to scale provide a large cost advantage to a single firm that produces all of an industries output.

network externality

exists when the value of a good or service to an individual is greater when many people use the good or service as well.

patent

gives an inventor a temporary monopoly in use of an invention

copyright

gives the creator of a literacy or artistic work sole rights to profit from that work.

public ownership

the good is supplied by the government or by a firm owned by a government.

price regulation

limits the price that a monopolist is allowed to charge

ways to deal with a natural monopoly

1. public ownership

2. regulation

single-price monopolist

offers its product to all consumers at the same price

price discrimination

when they charge different prices to different consumers for the same good.

perfect price discrimination

takes place when a monopolist charges each consumer their willingness to pay— the maximum that the consumer is willing to pay.