Chapter 16 - Monopoly

ECON:1100 Final Exam

What are the four principal models of market structure

• perfect competition

• monopoly

• oligopoly

• monopolistic competition

Monopoly

an industry controlled by a monopolist

Monopolist

a firm that is the only producer of a good with no close subs.

Market power

the ability of a firm to raise prices

What do monopolist do to a market?

they reduce outputs and raise prices

What is the difference between comp. markets and monopolies in terms of profit?

competitive firms cannot choose price and monopolists can

What are two opposing effects on revenue?

• quantity effect

• price effect

Quantity effect

one more unit sold, increasing TR by which the unit is sold

Price effect

to sell the last unit, the monopolist must cut market price on all units sold, this decreases TR

Natural monopoly

a monopoly created and sustained by increasing returns to scale

Increasing returns to scale

when ATC falls as output increases, firms tend to grow larger

Network externality

the value of a good or service to an individual increases as more individuals use the same goos or service

Patent

gives and inventor a temporary monopoly in sale of invention

Copyright

gives the creator of a literary work sole rights

Why do monopolists not have supply curves?

they control prices there is not set relationship between price and quantity supplied

Two policies within dealing with a natural monopoly

• public ownership

• regulation

Public ownership

government establishes a public agency to goods and protect consumers interests, but publicly owned companies are often poorly run

regulation

a price ceiling imposed on a monopolist

Perfect price discrimination

if it can be employed, a firm will charge each customer a different price, the maximum price each is WTP

Monopsony

exists when there is only one buyer of a good