Textbook Notes (368,588)
Canada (161,988)
Economics (923)
ECN 104 (387)
Chapter 8

Chapter 8

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Department
Economics
Course
ECN 104
Professor
Halis Yildiz
Semester
Summer

Description
Chapter 8: Monopoly 8.1 Characteristics of Monopoly • An industry in which one firm is the sole producer (seller of a product/service for which no close substitutes exist • Single seller: the firm & industry are synonymous • No close substitutes: product is unique • Price-maker: controls total quantity supplied, has considerable control over price; can change price by changing production quantity; can sell a much/little as it wants • Blocked entry: certain barriers keep potential competitors from entering industry • Non price competition: product produced may be standardized (natural gas, electricity) engage mainly in public relations advertising or differentiated (windows, Frisbees) sometimes advertise products’ attributes Barriers to Entry • Anything that artificially prevents the entry of firms into an industry • Strong barriers effectively block all potential competition; weaker barriers permit oligopoly & entry of competing firms • Economies of Scale (natural monopoly) • Single firm can supply good/service to entire market at smaller cost than two+ firms • Aries when there is economies of scale over relevant range of output • When ATC declines, least-cost production is realized • Legal Barriers: Patents & Licenses • Patents: exclusive right of an inventor to use/allow another to use their invention; protect inventory from rivals, provide a monopoly position for life of patent www.notesolution.com • Licenses: limiting entry into an industry/occupation • Ownership /Control of Essential Resources • Use of private property as an obstacle to rivals • Owns/controls a key resource essential to production process can prohibit entry of rival firms • Pricing and Other Strategic Barriers • Entry may be blocked by the response of monopolist to entry attempts by rivals • Create entry barrier by cutting its price, stepping up advertising, actions to make it difficult for entrant to succeed Monopoly Demand • Status is secured • Firm is not governmentally regulated • Firm is a single price monopolist: firm changes the same price for all units • Marginal revenue is less than price: • Can increase sales only by charging lower price • Monopolist is a Price – Maker: • Firms with downward sloping demand curves • Monopolist sets price in elastic region of demand www.notesolution.com **RECALL: Elastic demand, decline in price will increase TR Inelastic demand, decline in price wi
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