ECON 1050 Chapter Notes - Chapter 13: Monopoly Price, Deadweight Loss, Marginal Revenue

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CHAPTER 13 - MONOPOLY
Monopoly and How It Arises
A Monopoly is a market with a single firm that produces a good or service
How it Arises
No Close Substitutes
Barrier to Entry
No Close Substitutes
A monopoly sells a good or service that has no good substitutes
Barrier to Entry
Constraint that protects a firm from potential competitors
3 types of barrier to entry:
o Natural Barrier to Entry
o Ownership Barrier to Entry
o Legal Barrier to Entry
Natural Barrier to Entry
Creates a natural monopoly: a market in which economies of scale enable one firm
to supply the entire market at the lowest possible cost (ex. Hydro company)
Ownership Barrier to Entry
When one firm owns a significant portion of a key resource in production
Legal Barrier to Entry
Creates a legal monopoly: a market in which competition and entry are restricted
by granting of a public franchise, government licence, patent, or copyright.
Monopoly Price Setting Strategies
Single Price
Price Discrimination
Single Price
A Single Price Monopoly is a firm that must sell each unit of its output for the
same price to all its customers
Price Discrimination
When a firm sells different units of a good or service for different prices
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CHAPTER 13 - MONOPOLY
A Single-Price Monopoly’s Output and Price Decision
Price and Marginal Revenue
A monopoly’s demand curve is the market demand
curve and a single-price monopoly’s marginal
revenue is less than price
Marginal Revenue and Elasticity
In a monopoly demand is always elastic
Price and Output Decision
A monopoly maximizes profit by producing the output at which marginal revenue
equals marginal cost and by charging the maximum price that consumers are willing
to pay for that output
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Document Summary

A monopoly is a market with a single firm that produces a good or service. A monopoly sells a good or service that has no good substitutes. Constraint that protects a firm from potential competitors. 3 types of barrier to entry: natural barrier to entry, ownership barrier to entry, legal barrier to entry. Creates a natural monopoly: a market in which economies of scale enable one firm to supply the entire market at the lowest possible cost (ex. When one firm owns a significant portion of a key resource in production. Creates a legal monopoly: a market in which competition and entry are restricted by granting of a public franchise, government licence, patent, or copyright. A single price monopoly is a firm that must sell each unit of its output for the same price to all its customers. When a firm sells different units of a good or service for different prices.

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