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Pure Monopoly

Pure Monopoly. 8. An Introduction to Pure Monopoly. Single seller—a sole producer No close substitutes—unique product Price maker—control over price Blocked entry—strong barriers to entry block potential competition Nonprice competition—mostly PR or advertising the product. LO1.

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Pure Monopoly

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  1. Pure Monopoly 8

  2. An Introduction to Pure Monopoly Single seller—a sole producer No close substitutes—unique product Price maker—control over price Blocked entry—strong barriers to entry block potential competition Nonprice competition—mostly PR or advertising the product LO1

  3. Examples of Monopoly Public utility companies Natural gas Electric Water Near monopolies Intel Wham-O Professional sports teams LO1

  4. Barriers to Entry Barrier to entry: a factor that keeps firms from entering an industry Economies of scale Legal barriers: patents and licenses Ownership of essential resources Pricing LO1

  5. Monopoly Demand The pure monopolist is the industry The demand curve is the market demand curve Downsloping demand curve Marginal revenue is less than price LO1

  6. Monopoly Demand LO2

  7. Monopoly Demand $142 132 122 112 102 92 82 1 2 3 4 5 6 0 • All customers must pay the same price Loss = $30 D Gain = $132 LO2

  8. Output and Price Determination $200 150 100 50 0 Price MR D 18 2 4 6 10 14 16 8 12 Quantity LO2

  9. Monopoly Demand Marginal revenue < Price Monopolist is a price maker Monopolist sets prices in elastic region of demand curve LO2

  10. Output and Price Determination $200 175 150 125 Price, Costs, and Revenue 100 75 50 25 1 2 3 4 5 6 7 8 9 10 Quantity Pm=$122 MC Economic Profit ATC D A=$94 MR=MC MR 0 LO2

  11. Misconceptions of Monopoly Pricing Not highest price Total profit Possibility of losses LO2

  12. Economic Effects of Monopoly Pure competition is efficient Monopoly is inefficient S=MC MC b Pm P=MC= Minimum ATC d c Pc Pc a D D MR Qc Qm Qc (a) Purely competitive market (b) Pure monopoly LO3

  13. Economic Effects of Monopoly Income transfer Cost complications Economies of scale X-inefficiency Rent-seeking expenditures Technological advance LO3

  14. Price Discrimination Price discrimination Charging different buyers different prices Price differences are not based on cost differences Conditions for success: Monopoly power Market segregation No resale LO4

  15. Examples of Price Discrimination Business travel Electric utilities Movie theaters Golf courses Railroad companies Coupons International trade LO4

  16. Graphical Analysis P P Economic profit Economic profit Pb Ps MC = ATC MC = ATC Qs Ds Qb Db MRs MRb (b) Students (a) Small businesses LO4

  17. Monopoly and Antitrust Policy Antitrust laws Break up the firm Regulate it Government determines price and quantity Ignore it Let time and markets get rid of monopoly LO5

  18. Global Perspective Competition from Foreign Multinational Corporations LO5

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