The Theory of Pure Monopoly

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The Theory of Pure Monopoly

This lecture focuses on monopolies, and how they differ from pure competition models. We learn about the characteristics of monopoly and monopoly profits.

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University of Oklahoma
Econ 1123 - Princ. of Econ-Micro

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ECON 1123 1st Edition Lecture 15 Outline From Previous Lecture (Lecture 14) I. Cost Industries II. Pure Competition Conclusions Outline Lecture 15 I. The theory of pure monopoly A. Characteristics of Pure Monopoly B. Monopoly Profits Lecture 15 Notes I. The theory of pure monopoly A. Characteristics of Pure Monopoly -A single seller of a good or service with no close substitutes It CONTRASTS pure competition: many seller and homogeneous products. -Monopolists try to maximize profits or minimize losses by following the rule: marginal revenue = marginal cost -In monopoly, the firm and industry are identical. So, the monopolist faces the market (industry demand curve) This CONTRASTS pure competitions horizontal demand schedule at some price. The firms in pure competition take the price the market gives them. In pure completion, marginal revenue and demand will be equal -In monopoly, demand does not equal marginal revinue Note: If the monopolist charges a uniform price for all output units, then each time an additional unit is sold, total revenues increases by something less than the price charged for the unit Why would total revenue not increase by the full price paid for the last unit sold? Because, to sell the last unit, the monopolist had to lower price on that unit AND lower price on all other units. Monopolist gains Total revenue=last unit’s price, but loses some revenue of all other units Myth: monopolies are always profitable. – Monopolies don’t necessarily always make profits if the demand for their good is low 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.

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