SC ECON 221 - Monopolies (4 pages)

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This lecture discusses markets considered to be monopolistic. The lecture also covers certain specifics such as: profit maximization, marginal revenue, natural monopolies and price discrimination.

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University Of South Carolina-Columbia
Econ 221 - Prin of Microeconomics

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ECON 221 Lecture 17 Outline of Last Lecture I Firms decision making a Maximizing profits b Different types of competition II Cost Curves a Total Cost Curve b Average Total Cost Curve III Short Run vs Long Run costs IV Market Structure Outline of Current Lecture I Monopolies a General info b Natural Monopoly II Marginal Revenue III Profit Maximization IV Price Discrimination Current Lecture Monopolies Lecture 18 A market with a single seller Product does not have close substitute Barriers to entry can t just jump into market These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute o o Control of a scarce resource Government Patents copyrights etc Consider the alternative Natural Monopolies o Natural Monopolies More effective to only have one company producing something Ex Phone lines cable television Very high fixed costs but low cost of increasing output once fixed costs are paid Increasing returns to scale across all reasonable levels of production Cheaper for one large firm to provide for the entire market vs two smaller ones Very difficult for smaller firms to compete De Beers Diamonds Exampleo Diamonds are expensive o Not physically scarce but sellers are making them scarce o People with access to the diamond deposits banded together to form De Beers o This kept quantity sold low and prices high How to maximize profits in perfect competition o Firms maximize profits by choosing Q such that MR Q MC Q o In perfect competition MR Q P for any Q o Firms make positive profits and enter the market when P min ATC o Eventually leads to all firms earning zero profit but minimizing their ATC Keep in mind that all of these results are stemmed from the fact that Perfectly Competitive firms are price takers Many sellers Identical products Raising price above market price no buyers Monopolies Single sellers Producing a good with no close substitutes o Marginal revenue is now

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