Chapter 15 (Monopoly)

A firm that is a sole seller of a single product with no close substitutes

• Has market power

• Arise due to barriers to entry

  • Monopoly resources, government regulation (Patents & copyright laws), and the production process

Demand curve for monopolies are downwards sloping

The profit maximizing Q is where MR=MC

• (P-ATC) x Q determine profit

• There is dead weight loss under a monopoly but not under perfect competition

Price Discrimination

Sell the same good at different prices to different buyers

• selling to different buyers amount the demand curve according to their willingness to pay

  • Movie Tickets, Air Line prices, Amusement park, discounts, etc.

• Perfect Price Discrimination: Charging every single person their willingness to pay (creates zero dead weight loss)

Public Policy Towards Monopolies

1. Increasing competition with antitrust laws

2. Regulation

3. Public ownership

• Private Owners and Public Owners (government)

1. Do nothing