ECON 201 1nd Edition Lecture 19 Outline of Last Lecture I Introduction II Barriers III IV V VI VII The Key Difference Between a Monopolist and a perfect competitor A Model of Monopoly Graphical Illustration Price and Output Question Profit and Monopoly Outline of Current Lecture I The Welfare loss from monopoly II The price discriminating monopolist III Barriers to entry and Monopoly IV Normative views on monopoly Current Lecture I II III The Welfare loss from monopoly a Monopolies charge a price higher than marginal cost MC iof increasing output is lower than the marginal benefit of increasing output b Ex USPS monopoly in 1775 Pay no tax exempt from local zoning law deliver first class mail in mailbox 1970 6c 2009 44c Competitors email UPS The price discriminating monopolist a Price discrimination is the ability to charge different prices to different individuals or groups b Conditions i Identify groups of customers who have different elasticities of demand ii Separate them some way iii Limit their ability to resell its product between groups c A price discriminating monopolist can increase both output and profit d It can charge customers with more inelastic demands a higher price e It can charge customers with more elastic demands a lower price f Real world business class air ticket IBM printers Disney world coupon to local resident Las Vegas Monorail local resident pay less CO ski pass for local resident Barriers to entry and Monopoly 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 IV a Barrier to entry a social political or economic impediment that prevents firms from entering the market So monopoly survives b P C no barrier to enter LR there is no profit c Different barrier i Natural barrier size and cost economy of scale No welfare loss There is welfare gain ii Artificial barrier policy restriction patent 1 A legal protection of a technical innovation that gives the person holding the patent a monopoly on using that innovation for a specified period of time Normative views on monopoly a Is monopoly unfair and wrong i Higher price lower quantity ii Dead weight loss iii Rent seeking iv But patent encourage R D innovation monopoly may not make large profit with product differentiation output is large with threatening from outside they might charge low price
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