01:220:102 Lecture Notes - Lecture 18: Market Power, Demand Curve, Marginal Revenue
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Published on 2 Nov 2018
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ECON 102 - Lecture 18 - Monopoly
The Meaning of Monopoly
●Monopolist
○A firm that is the only producer of a good with no close substitutes
○An industry controlled by a monopolist is known as a monopoly
●Market power
○The ability of a firm to raise prices
●Single seller: a sole producer
●No close substitutes: unique product
●Price maker: control over price
●Blocked entry: strong barriers to entry
●Non-price competition: mostly PR or advertising the product
What a Monopolist Does
●A monopolist reduces the quantity supplied to Qm and moves up the demand curve from
●C to M, raising the price to Pm
Why Do Monopolies Exist?
●How do they get away with this and protect their profit from new firms?
●Profits will not persist in the long run unless there is a barrier to entry
Barriers to Entry
●Barriers to entry are essential for monopolies. They generate profit for the monopolist in
the short run and long run
●This can take the form of
○Control of natural resources or inputs
○Increasing returns to scale