Economics 1021A/B : MicEco - Chapter 13.docx

• School: Western University
• Department: Economics
• Course: Economics 1021A/B
• Professor: All

Document Summary

Natural barriers to entry create a natural monopoly: an industry in which economies of scale enable one firm to supply the entire market at the lowest possible cost. The market demand curve for electric power is d, and the long run average cost curve is lrac. Economies of scale prevail over the entire length of the lrac curve. Price discrimination is where a firm sells different units of a good or service for different prices. (many firms price discriminate, but not all of them are monopoly firms. ) If demand is elastic, a 1% fall in the price brings a greater than 1% increase in the quantity demanded. The increase in revenue from the increase in quantity sold outweighs the decrease in revenue from the lower price per unit, and mr is positive. As the price falls, the total revenue decreases. A single price monopoly never produces an output at which demand is inelastic.