ECON-2006EG Study Guide - Quiz Guide: Economic Equilibrium, Deadweight Loss, Ebay

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A more common market situation than the perfectly competitive market is a market in which a firm is not simply a price-take, but a price-maker: price-makers are sellers that set the price of a good. They have the ability to set the price of a good because they have market power: market power relates to the ability of sellers to affect prices. The most extreme form of market power is a monopoly: monopoly is an industry structure in which only one seller provides a good or service that has no close substitutes. Therefore, a monopolist does not have to be concerned with the behaviour of other sellers. The price chosen by the monopolist maximizes the company"s price. For monopolists" market power arises through barriers to entry: barriers to entry provide a seller with protection from potential competitors entering the market.

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