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Monopoly: Price Searcher

This comprehensive overview of monopoly explores its defining characteristics such as unique products, barriers to entry, and short-run equilibrium. We examine the demand curve for monopolies, revenue and cost considerations, and the effects of monopolies on consumer welfare and producer profits. Additionally, we delve into the implications of multi-plant monopolies and the concept of natural monopolies. Solutions to monopoly-related challenges, including regulations and market comparisons with perfect competition, are also discussed, highlighting the economic inefficiencies and wealth transfers that occur in monopolistic markets.

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Monopoly: Price Searcher

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Presentation Transcript

  1. Monopoly: Price Searcher • Monopoly defined • One firm • Unique product, no close substitutes • Barriers to entry

  2. Barriers to Entry • Government franchise • Economies of scale • Ownership of vital resource

  3. Short-Run Equilibrium in Monopoly • Monopoly demand curve • Revenue considerations • Cost considerations • Monopoly equilibrium

  4. Evaluation of Monopoly • Wealth transfers from consumer to producer • Positive economic profit in LR • P>MC, price not a good cost signal • Restricted output • DWL to society • Rent seeking behavior • Lack incentives for innovation and efficiency

  5. Multi-Plant Monopoly • Single firm, operating multiple plants with different cost structures • Graphical example • Mathematical example

  6. Natural Monopoly • Decreasing cost industry • Distributional economies • Economies of scale • Solutions to problems • Franchise or nationalize • Regulate

  7. Price Discrimination • Block pricing • Peak load pricing • Case study: College tuition

  8. Comparing Monopoly with Perfect Competition • Social cost of monopoly • Graphically • Algebraically

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