Monopoly Inefficiency

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Monopoly Inefficiency

This lecture discussed monopoly in more depth and explained in more detail why monopolies are inefficient.


Lecture number:
18
Pages:
2
Type:
Lecture Note
School:
University of Oklahoma
Course:
Econ 1123 - Princ. of Econ-Micro
Edition:
1

Unformatted text preview:

ECON 1123 1st Edition Lecture 18 Outline From Previous Lecture (Lecture 17) I. Private Goods and Public Goods demand schedules II. Positive Externalities (or external benefits) revisited III. Negative Externalities (or external costs) pollution Outline Lecture 18 I. Monopoly Inefficiency II. Monopoly Characteristics Revisited Lecture 18 Notes I. Monopoly Inefficiency When a monopoly is inefficient, the demand schedule and marginal revenue schedule will not meet at the same place on the upward sloping marginal cost graph. Sometimes this causes deadweight loss: The loss of consumer and producer surplus because some transactions are not undertaken Rent Seeking- behavior directed toward avoiding competition, resources expended to protect a monopoly position (lobbying, licensing requirements) Note: monopolies are more inefficient because they are protected from competition, so they have weaker incentives to minimize costs. Monopolists could devote all economic profits to rent seeking and still earn normal accounting profits. Price Discrimination- Pre- supposes some degree of “market power” (or monopoly power, i.e., some control over the price charged (unlike pure competition who are price “takers” Generally, charging different consumer groups different prices for the same product or service Requirements for price discrimination: -Sellers must have some “market” or “monopoly” power -Sellers must be able to separate consumers based on their elasticities of demand -Sellers (with market power) must be able to prevent arbitrage (prevent low price buyers from reselling to high price buyers) 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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