ECON 1B03 Chapter Notes - Chapter 15: Natural Monopoly, Demand Curve, Market Power
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ECON 1B03 Full Course Notes
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Monopolies arise b/c of barriers to entry: a single firm owns a key resource that no other firm can access or has a close substitute for, 2. The government gives one firm the exclusive right to produce and sell some good. Its demand curve is the market demand curve. So, the monopoly faces a downward sloping demand curve. So if the firm wants to increase the q sold, it has to lower its p. Therefore, it gets less revenue for each additional good it sells. So: mr is always lower than p, the profit-maximizing monopolist will always choose to produce a level of output q such that, mr = mc < p, profit = tr tc. Monopoly = (monopoly price atc)*profit-maximizing quantity. Consumers lose surplus, the monopoly appropriates some surplus from consumers and some surplus no one gets (the dwl).