ECN 104 Chapter 15: Chapter 15 - Monopoly
Document Summary
a monopoly is a firm that is the sole seller of a product without close substitutes. In this chapter, we study monopoly and contrast it with perfect competition. A monopoly firm has market power, the ability to influence the market price of the product it sells. The govt gives a single firm the exclusive right to produce the good. The main cause of monopolies is barriers to entry other firms cannot enter the market. Three sources of barriers to entry: diamond mines. In a competitive market, the market demand curve slopes downward. But the demand curve for any individual firm s product is horizontal at the market price. The firm can increase q without lowering p, so mr = p for the competitive firm. to sell a larger q, the monopolist must reduce the price on all the units it sells. mr could even be negative if the price effect exceeds the output effect (e. g. , when common.