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Chapter 15

ECN 104 Chapter Notes - Chapter 15: Natural Monopoly, Demand Curve, Market Power


Department
Economics
Course Code
ECN 104
Professor
Tsogbadral Galaabaatar
Chapter
15

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Parmida
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Chapter 15 Monopoly
WHY MONOPOLIES ARISE
Monopoly a firm that is the sole seller of a product without close substitutes
Monopoly has market power, the ability to influence the market price of the product it sell, a
competitive firm has no market power
The main cause of monopolies is barriers to entry other firms cannot enter the market
1. Monopoly Resources a key resource is owned by a single firm
2. Government-created monopolies the government gives a single firm exclusive right to
produce a good
3. Natural monopolies single firm can produce the entire market Q at lower cost than
could several firms
HOW MONOPOLIES MAKE PRODUCTION AND PRICING DECISIONS
Monopoly vs Competition
In a competitive market, the market demand curve slopes downward, but the demand curve for
ay idiidual fir’s produt is horizotal at the arket prie. The fir a irease Q without
lowering P, so MR = P.
Monopolist is the only seller so it faces the market demand curve. To sell a larger Q, the firm
must reduce P, so MR ≠ P
A Monopoly’s Revenue
Increasing Q as two effects on revenue:
1. Output effect higher output raises revenue
2. Price Effect lower price reduces revenue
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