ECO101H1 Lecture Notes - Natural Monopoly, Monopolistic Competition, Oligopoly

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14 Apr 2014
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ECO101H1 Full Course Notes
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ECO101H1 Full Course Notes
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Monopoly: real world relevance: legal; example: patent, near monopoly; example: microsoft, windows operating system, natural (high fixed costs, low marginal cost); example: pipelines, electrical power. Fixed cost: 10 million (constructing the pipeline) Marginal cost (per barrel of oil): sh. 50. Size of market: 2 million barrels of oil transferring from point a to b. What is the atc? (if market is divided evenly among firms) If you force competition on this industry, would only push the atc up. Policy response: regulate a single firm in the case of natural monopoly. Only makes sense to have one firm, to protect consumers, we can only regulate the firm. Unregulated natural monopoly: sell pm and qm. Price to cover atc of the monopolist. Only allowed to earn the normal rate of profit, zero economic profit - the opportunity cost of invested capital. The monopoly is not allowed to profit maximize. Value to buyers (p) > mc of producer.

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