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Economics 1021A/B Lecture Notes - Monopoly Price, Marginal Revenue, Price Discrimination

Course Code
ECON 1021A/B
Emilie Rivers

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Economics Chapter 13
Monopoly and How it Arises
-Monopoly is a market:
That produces a good service for which no close substitute exists
In which there is one supplier that is protected from competition by a barrier
to entry
o Natural an industry in which economies of scale enable one firm to
supply the entire market at the lowest possible cost, the LRAC is still
sloping downward at intersection with market demand, has not
reached minimum efficient scale
o Ownership one firm owns a significant portion of a key resource
o Legal competition and entry are restricted by the granting of a:
Public franchise Canada post, first class mail
Government license to practice medicine
Patent or copyright government identify inventor of
intellectual property
-Monopoly price setting strategies
Single price monopoly a firm that must sell each unit of its output for the
same price to all its customers
Price discrimination practice of selling different units of a good or service
for different prices
A single-price monopoly’s output and price decision
-Price and marginal revenue
A monopoly is a price setter
o Demand for the monopoly’s output is market demand
o To sell more output, a monopoly has to lower it’s price
-TR = P x Q
-MR = change in total revenue that results form a one unit increase in the quantity
-For a single price monopoly, marginal revenue is less than price at each level of
output, MR<P
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