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ECN 104 (387)
Chapter 15

ECN 104 Chapter 15: Monopoly

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ECN 104
Tsogbadral Galaabaatar

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. Governmentcreated 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 any individual firms product is horizontal at the market price. The firm can increase 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 Monopolys Revenue Increasing Q as two effects on revenue: 1. Output effect higher output raises revenue 2. Price Effect lower price reduces revenue 1 Parmida
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