Monopoly

ECON 1030 Unit 9

Monopoly

A market structure characterized by a single seller, producing a good or service for which there are no close substitutes, in a market with relatively blocked entry. A monopoly is a price maker

Monopoly Power

The ability of a monopoly to influence prices by controlling the quantities that it produces in the market.

Barriers to Entry

Any impediments that prevent firms from entering a market or industry

Marginal Revenue (MR)

The change in a firm’s total revenue that results from a one-unit change in output produced and sold.

Economic Profit

The level of profit that occurs when total revenue is greater than total cost.

Normal Profit

The level of profit that occurs when total revenue is equal to total cost. This level indicates that a firm is doing just as well as it would have if it had chosen to use its resources to produce a different product or compete in a different industry. Normal profit is also known as zero economic profit.

Loss

The level of profit that occurs when total revenue is less than total cost.

Price Discrimination

The practice of selling the same good or service to different consumers at different prices.

First-Degree Price Discrimination

The practice of charging each and every consumer the price that she is willing and able to pay for a good or service

Productive Efficiency

Producing output at the lowest possible average total cost of production; using the fewest resources possible to produce a good or service

Allocative Efficiency

Producing the goods and services that are most wanted by consumers in such a way that their marginal benefit equals their marginal cost.

Deadweight Loss

The value of the economic surplus that is forgone when a market is not allowed to adjust to its competitive equilibrium.

Second-Degree Price Discrimination

The practice of charging different prices per unit for different quantities, or blocks, of a good or service. Also known as block pricing

Third-Degree Price Discrimination

The practice of dividing market participants into groups based on their elasticities of demand in order to charge each group a different price for the same good or service.

Unregulated Monopoly Price

The profit-maximizing price that will result from an unregulated monopolistic market.

Regulated Normal Profit Price

A regulated price that is equal to the average total cost of production. The normal profit price can be found where the average total cost curve intersects the demand curve.

Regulated Competitive Price

A regulated price that is equal to the marginal cost of production. The competitive price can be found where the marginal cost curve intersects the demand curve, and it is allocatively efficient.

Economies of Scale

A condition in which the long-run average total cost of production decreases as production increases.

Natural Monopoly

An industry in which economies of scale are so extensive that the market is better served by a single firm.