Chapter 15 – Monopoly
A monopoly is
- One seller of a product
- Its product does not have close substitutes
- The firm is a price setter
The Three Sources of Barriers of Entry (That Create Monopolies)
1. A single firm owns a key resource that no other firm can access or has a close substitute for. In
reality this is rare because firms are big and international in scope.
2. The government gives one firm the exclusive right to produce and sell some good.
a. Patents, copyrights, etc.
3. The industry is a natural monopoly
a. Arises when it is cheaper for one company to produce a good than many.
b. Arises when there are economies of scale over the relevant range of output (downward
sloping part of the average total cost curve).
Since a monopoly is the only