ECON 200 Lecture Notes - Lecture 10: Monopoly Profit, Marginal Revenue, Natural Monopoly

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ECON 200 Full Course Notes
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ECON 200 Full Course Notes
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Monopoly firms are price makers as they have no close competitors in the market. A (cid:373)o(cid:374)opoly fir(cid:373) (cid:272)a(cid:374) (cid:272)o(cid:374)trol the pri(cid:272)e of the good it sells, (cid:271)ut the (cid:373)o(cid:374)opoly"s profits are (cid:374)ot u(cid:374)li(cid:373)ited. A firm is a monopoly if it is the sole seller of its product and there are not any close substitutes. Fundamental cause of a monopoly is barriers to entry, which have three main sources: Monopoly resources: a key resource required for production is owned by a single firm. Government regulation: the government gives a single firm the exclusive right to produce some good or service. Production process: a single firm has lower output cost than a larger number of firms would have. The simplest way for a monopoly to arise is for a single firm to own a key resource. In practice monopolies rarely arise for this reason.

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