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Chapter 15

Chapter 15

2 Pages
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Department
Economics
Course Code
ECN 104
Professor
Eric Kam

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Chapter 15
MONOPOLY
Firm that is the sole seller of a product without close substitutes
Market power: firm in a monopoly that has the ability to influence market price of
the product it sells.
Barriers to entry (why firms cannot enter this market)
oSingle firm owns a key resource to the market
oGovernment gives a single firm exclusive rights to produce goods
oNatural monopoly: a single firm can produce the entire market quantity at
lower ATC than could several firms
Monopoly demand curve
oA monopolist is the only seller, so it
faces the market demand curve.
(Monopoly is less elastic than
competitive firms; competitive
firms are perfectly elastic)
MR P
Marginal revenue is
always LESS than the price of its good
oIncrease in Quantity has two effects on MR
Output effect: More output is sold, which raises revenue
Price effect, which lowers revenue
MR<P
oProfit maximization
Profit is equal to
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Description
Chapter 15 MONOPOLY Firm that is the sole seller of a product without close substitutes Market power: firm in a monopoly that has the ability to influence market price of the product it sells. Barriers to entry (why firms cannot enter this market) o Single firm owns a key resource to the market o Government gives a single firm exclusive rights to produce goods o Natural monopoly: a single firm can produce the entire market quantity at lower ATC than could several firms Monopoly demand curve o A monopolist is the only seller, so it
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