8.1 Monopoly Flashcards
characteristics for monopoly
o There is only ONE firm (but many buyers)
o There are prohibitive barriers to entry for potential entrants
o Resource mobility and market information may be influenced by the monopolist
o The monopolist aims to maximise profits
o There are no close substitutes for this product
how can government block entry of firms to market
a) Patents and copyright= incentive
b) By granting a public franchise (exclusive provider)
besides market barrier, what are three other barriers
- firm has key control over resource
- network externalities (critical scale)
- economies of scale so large= natural monopoly)
what is the market demand in monopolies
monopolist demand curve= markets
what are the two effects at work the mean if monpolosist want to increase production, must lower price for all units
o A gain in rev from selling more output
o A loss in rev from selling each unit at lower price
// net effect= MR
how to work out price
where MC=MR, then go up to demand curve
economic profit calculation
o [P-ATC] x Q*
what is difference in where equilibrium point in in perfect competition and cmoonpoly
Pc p=mc
m mr=rc
what is the consumer and producer surplus in perfect comp
CS:
A + B + C
PS:
E + D
what is the consumer and producer surplus in
CS:
A
[lose B + C]
PS:
E+ B
[lost D, gain B
what is the consumer and producer surplus in perf comps compared to monopolies
- Consumers lose under a monopoly compared to perfect competition.
o Prices are (PM > PPC), and output (QM < QPC). - CS is also
- Producers have a net gain, because Area B (captured from consumers) is greater than the loss from Area D.
is there DWL in monopoly
yes
