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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
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