ECO 112 Lecture Notes - Lecture 9: Demand Curve, Natural Monopoly, Sherman Antitrust Act
Document Summary
The main cause of monopolies is barriers to entry-- other firms cannot enter the market. A single firm owns a key resource. The government gives a single firm the exclusive right to produce the good. A single firm can produce the entire market q at lower cost than could. In a competitive market, the market demand curve slopes downward. But the demand curve for any individual firm"s product is horizontal at the market price. The firm can increase q without lowering p. To sell a larger q, the monopolist must reduce the price on all units it sells. Mr could even be negative if the price effect exceeds the output effect. Like a competitive firm, a monopolist maximizes profit by producing the quantity where. Once the monopolist identifies this quantity, it sets the highest price consumers are willing to pay for that quantity.
