ECO101H1 Lecture Notes - Lecture 16: Natural Monopoly, Perfect Competition, Demand Curve
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ECO101H1 Full Course Notes
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Single seller (or product with no close substitutes) Barriers to entry: legal barriers (legal monopoly) High fixed costs plus low marginal costs: Toronto hydro, supplier of electricity (regulated by government) Toronto maple leafs, supplier of professional hockey (not regulated) Note: owners of toronto maple leafs, by agreement with nhl, can prevent another franchise from opening nearby (for example, hamilton) For a monopolist: market dd = firm dd, market dd slopes downward, so firm dd slopes downward, to sell an additional unit of output, monopolist must lower price of all previous units, implication: mr is less than p. To sell an additional unit of output, monopolist must lower price. Perfectly competitive firm can sell an additional unit of output at unchanged price. Key to profit-maximization: mr = mc (same logic as in perfect competition, mr < p (unlike perfect competition) Profit-maximizing output: monopolist chooses profit-maximizing output (qm) where mr = mc. At q1, mr > mc => expand output.
