microeconomics monopolies

market structure definition

how industries are classified and differentiated based on their level of competition for goods/services. Monopolies are least competitive

Monopoly characteristics

Only one seller, unique product with a lack of subsidies, high barriers to entry, firms are price ers, firms can make a profit or loss

since monopoly firms are price makers, they can engage in _____

predatory pricing

examples of monopolies

utilities (water, electric), diamonds (De Beers), USPS

Natural monopoly

The cost of additional competitors outweigh any benefit, such as utilities and power supply.

Legal monopoly

A monopowhere laws limit or prohibit competition, usually to encourage equity instead of limiting it.

Examples of natural and legal monopolies

Natural: power supply company. Legal: USPS

Legal monopolies: property rights examples

Patents, trademarks, copyrights

Patent

government rule that gives the inventor the exclusive legal right to make, use, or sell the invention for a limited time. In the united states, exclusive patent rights last for 20 years.

Trademarks

An identifying symbol or name for a particular good and can be used by the firm that registered that trademark. A firm can renew an active use trademark repeatedly

Copyrights

A form of protection for original works of authorship. Copyright protection ordinarily lasts for the life of the author plus 70 years

Firm maximizing profit point in monopoly

MR = MC then raise the price to the maximum point on the demand curve since they have no incentive to compete

1st degree price discrimination

A seller has perfect information about each customers willingness to pay to charge them the highest price possible for each unit (eliminates consumer surplus)

2nd degree price discrimination

This involves offering different price tiers based on the quantity purchased. Bulk discounts, tiered pricing plans.

3rd degree price discrimination

A company separates customers into distinct groups (like students, seniors, etc) and charges each group a different price

Profit formula monopoly

(Price - average total cost) times quantity

Perfect competition long run efficiency

Since perfect competition firms earn zero economic profit, it is economically efficient and prices equal marginal costs whle resources go to their most valued uses

Monopoly long run efficiency

Not economically efficient since prices are above marginal cost and quantites are lower than ideal