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Micro Chapter 11

TermDefinition
Pure Monopoly Single seller: a sole producer No close substitutes Price maker; can control price Strong barriers to entry
Examples of monopoly Standard oil natural gas electric professional sports teams
Barriers to entry factors that prevent firms from entering the industry
Economies of scale: natural monopoly
Barriers to entry examples: network effects patents and licenses ownership/control of essential resources pricing
Monopoly demand overview MR is less than: -The pure monopolist is the industry -Monopolist demand curve = Market demand curve (demand curve is downward sloping) -MR is less than the price
Monopoly Demand and Price MR will be less than price The monopolist is the price maker
Misconceptions about monopoly pricing -It's not the highest price -Involves Total, not unit, profit -there is a possibility of losses
Economic Effects of Monopoly and efficiency: Income transfer Cost complications: - X-inefficiency; do not have both productive and allocative efficiency in a monopoly
Profit maximization rule for pure monopoly: MR=MC (same as pure competition)
Assessment and Policy Options: how are monopolies controlled Antitrust Laws: break up the firm Regulate it: Government determines price and quantity Ignore it: Let time and markets get rid of monopoly
Price Discrimination: Charging different buyers different prices Different prices are not based on cost differences Ex: Cost of movie tickets on weekends compared to weekday mornings (Can make more on weekends, but need to convince buyers on weekdays)
Regulated Monopoly: Socially optimal price = Fair return price = Natural monopolies Socially optimal price: set price equal to MC Fair return price: set price equal to TC
Created by: Phillies55
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