ch 16 -monopolies

ECON 1101

monopoly

a firm that is the sole seller of a product without close substitutes

• price maker

• P = AR

• MR < P

price maker

the ability to influence the market price of the product it sells

output effect

higher output raises revenue

price effect

lower price reduces revenue

monopoly profit maximization

P > MR = MC

monopoly resources

a single firm owns key resources required for production

government regulation

the government gives a single firm the exclusive right to produce the good

natural monopoly

a single firm can produce the entire market Q at a lower cost than could several firms

• arises when there are economies of scale over the entire range of demand/output

• e.g., club goods

price discrimination

charge different prices for the same good based on the buyer’s willingness to pay

antitrust laws

prevent companies from coordinating their activities to make markets less competitive

regulation

set the monopolist’s price

public ownership

a government can run the monopoly itself