Management MGT 100 Lecture Notes - Lecture 5: Price Discrimination, State Ownership, Market Power
Document Summary
While a competitive firm is a price taker, a monopoly firm is a price maker. A firm is a monopoly if it is the sole seller of its product and if its product does not have close substitutes. The fundamental cause of monopoly is barriers to entry - a monopoly remains the only seller in its market because other firms cannot enter the market and compete with it. 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. The production process: a single firm can produce output at a lower cost than can a larger number of producers. An industry is a natural monopoly when a single firm can supply a good or service to an entire market at a lower cost than could two or more firms. Economies of scale: average total cost curve continually declines.