OU ECON 1123 - Monopoly Inefficiency (2 pages)

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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:
Lecture Note
The University of Oklahoma
Econ 1123 - Princ. of Econ-Micro
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ECON 1123 Edition 1st 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 II Monopoly Characteristics Revisited Sources of monopoly power Monopoly Inefficiency Rent seeking x inefficiency Price Discrimination Regulating a Natural Monopoly Anti Trust Policy In monopoly there is one seller with no close substitutes and significant barriers to entry Source of monopoly power economies of scale decreasing average costs over a large range out output Examples of Natural Monopolies intel local newspapers electrical utilities

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