ECON-E 201 Lecture Notes - Lecture 25: Natural Monopoly, Perfect Competition, Takers
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ECON-E 201 Full Course Notes
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Natural barriers: legal barriers to entry. Create legal monopoly- market in which competition and entry are restricted by granting of an ownership of resources without close substitutes. Public franchise (ie. us postal service, delivers first-class mail) Government license (ie. license to practice law or medicine) Patent and copyright: natural monopoly- arises from peculiar production characteristics in an industry. Usually arises when there are large economies of scale. One firm can supply entire market at lower price than 2+ firms can: cartels- association of producers in an industry that agree to set common prices and output quotas to prevent competition. A monopoly is a price setter, not price taker, like a firm in perfect competition. Demand for monopoly"s output is market demand. To sell larger output, monopoly must set lower price. Must lower price to sell more must only produce more to sell more. All units sold for same price (p = mr)
