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Chapter 13

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Department
Economics
Course
Economics 1021A/B
Professor
Emilie Rivers
Semester
Fall

Description
Economics Chapter 13 Monopoly and How it Arises -Monopoly is a market:  That produces a good service for which no close substitute exists  In which there is one supplier that is protected from competition by a barrier to entry o Natural – an industry in which economies of scale enable one firm to supply the entire market at the lowest possible cost, the LRAC is still sloping downward at intersection with market demand, has not reached minimum efficient scale o Ownership – one firm owns a significant portion of a key resource o Legal – competition and entry are restricted by the granting of a:  Public franchise – Canada post, first class mail  Government license – to practice medicine  Patent or copyright – government identify inventor of intellectual property -Monopoly price setting strategies  Single price monopoly – a firm that must sell each unit of its output for the same price to all its customers  Price discrimination – practice of selling different units of a good or service for different prices A single-price monopoly’s output and price decision -Price and marginal revenue  A monopoly is a price setter o Demand for the monopoly’s output is market demand o To sell more output, a monopoly has to lower it’s price -TR = P x Q -MR = change in total revenue that results form a one unit increase in the quantity sold -For a single price monopoly, marginal revenue is less than price at each level of output, MR
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