ECON 201 Lecture Notes - Lecture 10: Winzip, Predatory Pricing, Natural Monopoly

• School: Concordia University
• Department: Economics
• Course: ECON 201
• Professor: Eesha Sen Choudhury

Document Summary

Reasons for monopoly: a natural monopoly is one where the ac of producing any output declines with the scale of operation. Since the latc never increases, whoever attains scale economies can monopolize: a natural . With a fixed r & d cost f of producing the first unit and a constant mc thereafter, the latc declines indefinitely. A competitor who imitates this innovator does not incur f and could undercut the innovator. For example, to sell qa the imitator incurs the mc while the innovator incurs the atc. Patents protect intellectual property rights; encourage research and development. When the quantity sold increases total revenue/expenditure initially increases also. Where the tr is a maximum the mr=0. Demand and cost: the demand curve in example 2 is obtained by plotting the price-quantity combinations and joining them, the average cost is obtained as (total cost/q). The resulting points linking ac and q can then be plotted and joined.