Monopolies

market power

ability to set the price

monopoly

one seller of a good or service with no close substitutes

price taker or maker

price maker

demand curve

downward-sloping

price

P > MR = MC

social surplus

not maximized, but may benefit from R&D

equilibrium long run profits

potentially greater than zero

barriers to entry

legal market power (patent and copyright)
natural market power (control of key resources and economies of scale)

patent vs copyright

sole creator or seller of good (20 years)
rights to the creator (lifetime)

control of key resources

essential for the production of good or service

network externalities

a product's value increases as more consumers use it

natural monopoly

economies of scale over a very large range of output (fixed costs are high)

monopolist and perfect competition

produce output using a production process and input
incur production costs
maximize profits

difference with perfect competition

the monopoly can increase price and not lose all of its business

revenue curves

selling a greater quantity requires the monopolist to charge a lower price

net effect

quantity effect - price effect

marginal revenue

starts at y axis and is halfway between the demand curve and the y-axis

optimal solution

quantity: MC = MR
price: quantity = demand

supply curve

supply relationship doesn't exist

restoring efficiency: price discrimination

charging different customers different price for the same good or service when there are no cost differences

first degree

when each consumer is charged the max they are willing to pay

second-degree

charged different prices based on the characteristics of the purchase

third-degree

consumers are charged different prices based on the characteristics of the customer or location