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UO ECON 201 - Regulator of Monopolies
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ECON 201 1st Edition Lecture 12Cont. from Last ClassI. Monopolies Cont.E.) Natural Monopoly - A natural monopoly is an industry that exhibits large economies at scales such that ATC are declining over market levels of output.- EX: New Hep C drug – first and well recognized treatment o Patented and can only be sold by one single company o Had to do all of the research, development, tests and production- There is no DWL where MC and the demand curve meet o At this point the price is below the average total costo The firm will have negative revenue and will not be willing to sell for said price-II. Regulator of MonopoliesA.) Solution for natural monopoly1. Average cost pricing – Normal rate of return 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.a.b. Give firms the right to set the cost equal to their average costc. Potential benefit= reducing the amount of DWL (more consumption and sales of the good); allows for more transaction in the market placed. Potential cost= cronyism or moral hazard2. Municipal production a. Potential Benefit = eliminate dead weight loss b. Potential Cost = hired officials 3. Price Capa.b. Potential Benefits = reduces dead weight loss and easy to enforcec. Potential Costs = very static (only price you can charge); as MC bumps up and down the price may not be appropriate B.) General Regulation of Monopoly1. Sherman Act 18901. Still very much enforced2. Cant restrict trade among states, or foreign nations 3. Can’t monopolize or attempt to monopolize (can’t actively pursue monopoly power)4. Both actions were made a felony 2. Clayton Act 19501. Main act in affect now 2. Cannot engage in any of the following activities if they lessen competition1. Price discrimination (i.e. senior citizen discounts)** charging different prices to different individuals 2. Require purchases (inputs) from other firms3. Restrict products a firm can sell4. Restrict resale by location 5. Be a director of a competing


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