CAS EC 101 Lecture Notes - Lecture 9: Electricity Delivery, Regional Policy Of The European Union, Perfect Competition

47 views7 pages
CHAPTER 15: MONOPOLY
Objective 1: Summary of a Market Structure ā€“ Perfect Competition
ā€¢ Characterized by:
o very many firms
o identical output between firms
o price takers
ā–Ŗ No one individual firm can have an influence over price
ā–Ŗ Each firm must take the market given price
o no barriers to entry/exit
o Formulas ā€“
ā–Ŗ MR = MC = P
ā–Ŗ q* is at the minimum AC point
o positive/zero/negative short-run profit
o zero long-run profit
o no need for advertising
ā–Ŗ Firms will sell as much as they can produce so there is no need for this
extra effort
Objective 2: Conditions for a Monopoly
ā€¢ There can only be one seller
ā€¢ There are barriers against other firms entering
o This leads to the sources of monopoly
Objective 3: Sources of Monopoly
ā€¢ A government grant of a monopoly (ex: AT&T providing long-distance services, airport
restaurants that only allow for one company per food type)
o Public Franchise ā€“ a government designation that a firm is the only legal provider
of a good or service
o Patents/Copyrights ā€“ an exclusive right held by a firm to be the only producer of a
certain goods
ā–Ŗ Can be held for a distinct length of time
ā€¢ The sole ownership or control of a scarce resource (ex: diamond companies who own the
land/mines in order to produce these goods)
ā€¢ Network Externalities ā€“ a product characteristic where the value/utility of a product
increases with the number of consumers who use it (ex: Microsoft and PCs, social
network sites, computer operating systems)
o This can lead to a Virtuous Cycle ā€“ when the sum of a firmā€™s product continues to
increase along with the price (which it has the ability to charge)
o Consumers may find themselves locked into an inferior product
ā€¢ Natural Monopoly ā€“ when economies of scale are so large that one firm can supply the
entire market at a lower average total cost than two or more firms (ex: electricity
delivery, when a single firm can deliver electricity at a lower cost than can two firms)
o Essentially, as a firm makes more money the lower their costs will be
o These are most likely when fixed costs are high
find more resources at oneclass.com
find more resources at oneclass.com
Unlock document

This preview shows pages 1-2 of the document.
Unlock all 7 pages and 3 million more documents.

Already have an account? Log in
o
o Average cost will be downwards sloping for
Objective 4: Demand & Marginal Revenue Curves
ā€¢ Demand Curves
o Perfectly Competitive Firm ā€“ horizontal demand curve where AR = P*
o Monopoly ā€“ downwards sloping demand curve
ā€¢ Marginal Revenue Curves
o Perfectly Competitive Firm ā€“ horizontal marginal revenue curve where MR = AR
= P*
ā–Ŗ Important to note that this is the same as the demand curve for a perfectly
competitive firm
o Monopoly ā€“ downwards sloping marginal revenue curve with a slope twice as
steep
ā–Ŗ
ā–Ŗ Important to note that the demand curve and marginal revenue curve will
share the same vertical intercept but have different slopes
ā€¢ ex: Jason Bourne DVDs
find more resources at oneclass.com
find more resources at oneclass.com
Unlock document

This preview shows pages 1-2 of the document.
Unlock all 7 pages and 3 million more documents.

Already have an account? Log in
tealzebra3 and 39199 others unlocked
CAS EC 101 Full Course Notes
56
CAS EC 101 Full Course Notes
Verified Note
56 documents

Get access

Grade+20% off
$8 USD/m$10 USD/m
Billed $96 USD annually
Grade+
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
40 Verified Answers
Class+
$8 USD/m
Billed $96 USD annually
Class+
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
30 Verified Answers

Related Documents

Related Questions