ECON1101 Lecture Notes - Lecture 20: Natural Monopoly
ECON1101 Week 7 Lecture B
● Entry and Exit of firms:
○ Entry and exit of firms will end until price back to minimum of long run ATC
○ Insert graph for long run - market
○ Insert graph for long run - typical firm
○ Lecture a, implicitly the SLR curve was flat at min ATCLR
○ Constant-cost industry: LR average costs remain unchanged as industry output
rises
● External diseconomies of scale:
○ Factors outside the control of a firm that raise its costs as industry output
increases
○ Insert graph for market and typical firm that was under the long run graphs
○ As industry Q increases => cost of inputs increases thus an increasing cost
industry
● External economies of scale:
○ Factors outside the control of a firm that lower its costs as industry output
increases
○ As industry Q increases => cost of inputs decrease thus a decreasing-cost
industry
○ Insert Long Run graphs for typical firms and market
● Monopoly:
○ A market with a single seller of a product with no close substitutes
○ Barrier to entry: anything that prevents firms from entering a market
○ Sources of monopoly or why only one seller in certain markets?
1. Economies of scale:
● Natural monopoly a market mostly cheaply served by a single firm
● Depends on size of market
● Firm quantity increases => ATC decreases
● Insert graph for economies of scale
2. Exclusive access to important inputs or technology:
3. Patents:
4. Government licenses
○ Insert price-taking firms graph and monopolist graphs
○ Profit-maximising monopolist
■ Profits = Revenues (P(Q)Q) - Costs C(Q)
● Thinking on the margin:
○ Monopolist maximises profits and produces where MC = MR
○ Insert the calculus shit
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Insert graph for long run - typical firm. Entry and exit of firms will end until price back to minimum of long run atc. Lecture a, implicitly the slr curve was flat at min atclr. Constant-cost industry: lr average costs remain unchanged as industry output rises. Factors outside the control of a firm that raise its costs as industry output increases. Insert graph for market and typical firm that was under the long run graphs. As industry q increases => cost of inputs increases thus an increasing cost industry. Factors outside the control of a firm that lower its costs as industry output increases. As industry q increases => cost of inputs decrease thus a decreasing-cost industry. Insert long run graphs for typical firms and market. A market with a single seller of a product with no close substitutes. Barrier to entry: anything that prevents firms from entering a market.
