lecture 6 monopoly

Monopoly

A firm that is a sole seller of a product without close substitutes and has market power , price maker

Main sources of barriers to entry

Monopoly ressources , government regulations , the production process

Monopoly resources

A single firm owns a key resource required for production

• Single water provider in town

Gov- created monopolies

Government gives a single firm the exclusive right to sell a good or service

• Patent and copyright laws

• Lead to higher prices and higher profits

Natural monopoly

A type of monopoly that arises because a single firm can supply a good or service to

an entire market at a lower cost than could two or more firms

• There are economies of scale over the relevant range of output

• Distribution of water, electricity, etc.

Price discrimination

The business practice of selling the same good at different prices to different

customers

• Rational strategy to increase profit

• Requires the ability to separate customers according to their willingness to pay

For monopolies marginal revenue ____ marginal costs

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Deadweight loss

the economic inefficiency that results from a market failing to achieve its optimal equilibrium point, leading to a loss of potential economic welfare