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ECON 101 NOTES: Types of markets

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Alexander Gainer

MONOPOLIES - Market power - One firm has the ability to influence the market price - Can result from a barrier to enter the market (firm holds key resource) or a governments that give rights to the production of a good or can just be natural (firm can produce at the lowest cost) MONOPOLY VS COMPETITIVE MARKET P The demand curve in a competitive market is horizontal because there are a lot of players in the market MR=P Q P The demand curve for a monopoly is downwards, more like a market demand curve because there is only one firm influencing the price. MR cannot equal P - To sell a larger Q monopolist must reduce price on all units Q - MRMR=MC - Results in a deadweight loss (the triangle between the dot on the demand curve to the marginal revenue curve… its really small in the graph, but the vertical black line in between D and MR to the place where D intersects MC is the measure of deadweight loss) DISCRIMINATIONS - Perfect price discrimination – a firm charges each consumer their willingness to pay - No deadweight loss - Captures all consumer surplus as profit - Single price discrimination – a firm charges the same price to all buyers and this will cause a deadweight Single price loss Perfect Price P MC P D
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