ECON101 Lecture Notes - Lecture 4: Price Ceiling, Economic Equilibrium, Competitive Equilibrium

• School: University of Waterloo
• Department: Economics
• Course: ECON101
• Professor: Zara Liaqat

Document Summary

Monopoly and how it arises: that produces a good or service for which no close substitute exits, there is one supplier that is protected from competition by a barrier preventing the entry of new firms. No close substitutes: if a good has a close substitute, the firm faces competition from the procurers of the substitute, a monopoly sells a good that has no close substitutes. Barriers to entry is a constraint that protects a firm from potential competitors. Natural barriers to entry create natural monopoly: a market which economies of scale enable one firm to supply the entire market at the lowest possible cost. Economies of scale are so powerful that they are still being achieved when the entire market demand is met. Lrac curve is still sloping downward when it meets the demand curve. One firm can produce 4 millions unit of output at 5 cents per unit.