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
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