Week 8 study guide

2 Pages
Unlock Document

University of Toronto Scarborough
Economics for Management Studies
Gordon Cleveland

Chapter 10 Monopoly, Cartels, and Price Discrimination Notes N monopoly : a market containing a single firm N monopolist : a firm that is the only seller in a market 10.1 A Single Price Monopolist Cost and Revenue in the Short Run N unlike a perfectly competitive firm, a monopolist faces a negatively sloped demand curve N monopolists marginal revenue is less than price at which it sells its output; thus monopolists MR curve is below demand curve Short Run Profit Maximization N nothing guarantees that a monopolist will make positive profits in the short run, but if it suffers persistent losses, it will eventually go out of business N for a monopolist, there is no unique relationship between market price and the quantity of output supplied; a monopolist therefore does not have a supply curve N a perfectly competitive industry produces a level of output such that price equals marginal cost; a monopolist produces a lower level of output, with price exceeding marginal cost N a monopolist restricts output below the competitive level and thus reduces the amount of economic surplus generated in the market; the monopolist therefore creates an insufficient market outcome Entry Barriers and Long Run Equilibrium N if monopoly profits are to persist in the long run, the entry of new firms into the industry must be prevented N entry barrier : any barrier to the entry of new firms into an industry; an entry barrier may be natural or created N natural monopoly : an industry characterized by economies of scale sufficiently large that only one firm can cover its costs while producing at its minimum efficient scale N in competitive industries, profits attract entry, and entry erodes profits; in monopolized industries, positive profits can persist as long as there are effective entry barriers The Very Long Run and Creative Destruction N a monopolists entry barriers are often circumvented by the innovation of production processes and the development of new goods and services; such innovation explains why monopolies rarely persist, except those that are protected through government charter or regulation 10.2 Cartels as Monopolies N cartel : an organization of producers who agree to act as a single seller in order to maximize joint profits The Effects of Cartelization N profit-maximiz
More Less

Related notes for MGEA02H3

Log In


Don't have an account?

Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.