Chapter 10: Pure Monopoly

Pure monopoly

Single firm is sole producer of product w/ no close substitutes

Barriers to entry

Factors that prohibit firms from entering industry

Simultaneous consumption

Product’s ability to satisfy large # of consumers at same time

Network effects

Value of product to each user increases as total number of users increases

X-inefficiency

Firm produces output at higher cost than necessary to produce

Rent-seeking behavior

Activity designed to transfer income/wealth to a firm/resource supplier at someone else’s expense

Price discrimination

Selling a specific product at more than one price when the price differences are not justified by cost differences

entry

Blocked ________- No potential competitors can enter industry.

Socially optimal price

Allocative efficiency; P = MC

Fair-return price

Permits fair return to firm owners; P = ATC