Chapter 13 Flashcards
Monopoly
A market with a single firm that produces a good or service with no close substitutes and that is protected by a barrier that prevents other firms from entering the market.
Two reasons why a monopoly arises:
- No close substitutes
- Barrier to entry
Three types of barrier to entry
- Natural
- Ownership
- Legal
Natural monopoly
A market in which economies of scale enable one firm to supply the entire market at the lowest possible cost.
Ownership Barrier to Entry
If one firm owns a significant portion of a key resource.
Legal Monopoly
A market in which competition and entry are restricted by the granting of a public franchise, government license, patent or copyright.
Public franchise
An exclusive right granted to a firm to supply a good or service.
Government license
Controls entry into particular occupations, professions and industries.
Patent
An exclusive right granted to the inventor of a product or service.
Copyright
An exclusive right granted to the author or composer of a literary, musical, dramatic, or artistic word.
Single-price monopoly
A firm that must sell each unit of its output at the same price to all its customers.
Price discrimination
When a firm sells different units of a good or service for different prices.
