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OU ECON 1123 - Monopoly Inefficiency

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ECON 1123 1st Edition Lecture 18 Outline From Previous Lecture (Lecture 17)I. Private Goods and Public Goods demand schedulesII. Positive Externalities (or external benefits) revisitedIII. Negative Externalities (or external costs) pollutionOutline Lecture 18I. Monopoly InefficiencyII. Monopoly Characteristics RevisitedLecture 18 NotesI. Monopoly InefficiencyWhen 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 undertakenRent 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 serviceRequirements 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 RevisitedSources of monopoly power:Monopoly InefficiencyRent seeking: x-inefficiencyPrice DiscriminationRegulating a Natural MonopolyAnti- Trust Policy*In monopoly there is one seller with no close substitutes and significant barriers to entrySource of monopoly power: economies of scale: decreasing average costs over a large range out outputExamples of Natural Monopolies- (intel, local newspapers, electrical


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