ECON 211 Chapter 15 Monopoly

monopoly

firm that is the sole seller of a good with no substitutes or price setters

1st cause of monopoly or barrier to entry

monopoly resource when firm owns or controls a key input

2nd cause of monopoly or barrier to entry

government created monopoly when government grants a firnm exclusive right to produce

examples of government created monopoly

patents and copyrights to incentivize innovation and creativity

3rd cause of monopoly or barrier to entry (high fixed costs)

natural monopoly when a single firm provide good to entire market at lower cost than could multiple firms

1st type of monopoly

single price monopolist

single price monopolist

firm can only charge some price to all buyers

2nd type of monopoly

price discriminatory monopolist

price discriminatory monopolist

firm can charge different prices to different buyers

profit maximization for single price monopolist

face the entire market demand curve and chooses q that satisfies MR=MC

price and MR relationship

MR<P, MR is decreasing faster than price

where do monopolists maximize profit

Qm and Pm

Monopoly markup is the

difference between Pm and MCqm