chapter 16 - monopolies 🕵🏻‍♂️

monopolist’s MR is

less than the price of its good

unlike firms in a competitive market, a monopoly is a

price maker

monopoly profit maxxing

output below level that maximizes the sum on CS + PS

how can DWL be elimated?

price discrimination

how can governments affect monopolies?

• antitrust laws —> competition

• turn the monopoly into a government enterprise

• regulate prices

what are barriers on entry in a monopoly?

• monopoly owns major resource

• government regulation creates monopoly

• production process is cheaper for 1 firm

natural monopoly

single firm can supply at good at a lower cost than 2+ firms

benefits of patents/copyright

incentive for creativity

economies of scale

as output increase, cost per unit (also ATC) decreases (and vice versa)

T/F monopolies can set both price and quantity

F - monopolies can only set price or quantity, not both

•raise price —> sell less qty

•larger qty —> sell at lower price

profit maxxing quantity

MR = MC

demand curve

P = AR curve

profit

TR - TC or (P - ATC) • Q

increase output if

MR > MC

decrease output if

MR < MC

output effect

more output sold, Q is higher, increase TR

price effect

price falls, P is lower, decrease total revenue

which monopoly has economies of scale?

natural monopoly

what does economies of scale mean?

ATC decreases as output/qty increases

natural monopoly profit

always earn zero profit in long run

additional unit means

MR < P because price effect outweighs the output effect

where is profit maxxing point?

price above qty MR = MC

which area is profit of a monopolist

where is deadweight loss?

what’s the difference between efficient price and quantity and profit, maximizing, price and quantity?

efficient: MC = D

profit maxxing: P>MR=MC

what makes a monopoly inefficient

underproduction of a good

compared to a perfectly competitive market on monopoly, we usually generate what type of prices and output?

higher prices and lower output

What is the effect of forcing a natural monopoly to charge a price equal to its marginal cost?

Cause monopolist to exit the market

if a natural monopoly is broken up

cost of production rises

increase output when

MR > MC

decrease output when

MR < MC

what causes dead weight loss?

low quantity