The Citadel ECON 202 - Monopoly (56 pages)

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Monopoly



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Monopoly

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Lecture Notes


Pages:
56
School:
The Citadel - The Military College of South Carolina
Course:
Econ 202 - Economic Statistics I

Unformatted text preview:

Chapter 25 Monopoly Introduction The Ambassador Bridge separating Detroit Michigan from Windsor Ontario is owned by a private company Clearly this is a firm that owns a resource with few close substitutes How does a firm in this situation known as a monopoly determine the price to charge for its product Copyright 2008 Pearson Addison Wesley All rights reserved 25 2 Learning Objectives Identify situations that can give rise to monopoly Describe the demand and marginal revenue conditions a monopolist faces Discuss how a monopolist determines how much output to produce and what price to charge Evaluate the profits earned by a monopolist Understand price discrimination Explain the social cost of monopolies Copyright 2008 Pearson Addison Wesley All rights reserved 25 3 Chapter Outline Definition of a Monopolist Barriers to Entry The Demand Curve a Monopolist Faces Elasticity and Monopoly Cost and Monopoly Profit Maximization Calculating Monopoly Profit On Making Higher Profits Price Discrimination The Social Cost of Monopolies Copyright 2008 Pearson Addison Wesley All rights reserved 25 4 Did You Know That A monopoly can arise whenever sellers are given exclusive rights to distribute a good A law intended to help New York wineries creates a situation called monopoly Copyright 2008 Pearson Addison Wesley All rights reserved 25 5 Definition of a Monopolist Monopolist A single supplier of a good or service for which there is no close substitute The monopolist therefore constitutes the entire industry Copyright 2008 Pearson Addison Wesley All rights reserved 25 6 Barriers to Entry Question How does a firm obtain monopoly power Answers Barriers to entry that allow the firm to make long run economic profits Barriers to entry are restrictions on who can start as well as stay in business Copyright 2008 Pearson Addison Wesley All rights reserved 25 7 Barriers to Entry cont d Barriers to entry include Ownership of resources without close substitutes Economies of scale Legal or



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