ECON 230 Study Guide - Monopolistic Competition, Market Power, Natural Monopoly

• School: McGill University
• Department: Economics (Arts)
• Course: ECON 230
• Professor: Isabel Galiana

Document Summary

The key difference between perfect competition and a market structure in which firms have pricing power is the presence of barriers to entry (prevent firms from entering) Perfect competition: if there"s profit, firms can enter to earn that profit, and it is preventing for that cause. Social consequence of next class to the market power. Factors that prevent entry into markets with large producer surpluses. Normally, positive producer surplus in the long run will induce additional firms to enter the market (long run the market supply curve is perfectly elastic reflecting) Monopsony: only one buyer, e. g. generally about employment, small town = only one firm hiring market power: ability of a seller or buyer to affect the price of a good. Extreme scale economies: natural monpoly: cost so low from preventing others to enter in the market. Long-run average total cost curve is downward sloping; diseconomies never emerge. Results in a situation called a natural monopoly.