ECON111 Lecture Notes - Lecture 11: Marginal Cost, The Star, Sydney, Deadweight Loss
Week 11 Monopoly
Characteristics
- One firm
- Barriers to entry (could be legal, own the resources, natural barrier -
economies of scale)
- Unique product/no close substitutes
- Firm is the price maker (chooses the price of the product)
- E.g. The Star Casino
If the minimum efficient scale is after the demand curve there is a natural monopoly
Single Price Strategy
- Charges everyone the same price for the product
Price Discrimination
- Charging different people, different prices
- Apply to any market structure besides perfect competition
- Must be something that can’t be resold e.g. services not products
(so the product can’t be resold for more)
Perfect Price Discrimination
- Charging each person the maximum price they are willing and able to pay
- Creates the entire graph to be producer surplus
- Is allocatively efficient because there is no DWL
Negatives
- Monopoly charges more and produces less than a perfect competition market
- Monopoly is allocatively inefficient because it creates a deadweight loss
- Monopoly does not produce at the minimum of the ATC curve
- Monopoly does not produce at minimum efficient scale
Patent
- Effectively legalise a monopoly
- Creates a copyright for 20 years
- Encourages innovation in new products
- Anyone who uses the product has to pay a royalty
Regulations
- Theories of how regulation works
Capture Theory
- Only benefits the firms
- And results in maximum profit, underproduction and deadweight loss
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Barriers to entry (could be legal, own the resources, natural barrier - economies of scale) Firm is the price maker (chooses the price of the product) If the minimum efficient scale is after the demand curve there is a natural monopoly. Charges everyone the same price for the product. Apply to any market structure besides perfect competition. Must be something that can"t be resold e. g. services not products (so the product can"t be resold for more) Charging each person the maximum price they are willing and able to pay. Creates the entire graph to be producer surplus. Is allocatively efficient because there is no dwl. Monopoly charges more and produces less than a perfect competition market. Monopoly is allocatively inefficient because it creates a deadweight loss. Monopoly does not produce at the minimum of the atc curve. Monopoly does not produce at minimum efficient scale. Anyone who uses the product has to pay a royalty.