Econ Ch. 14 Monopoly

Monopoly
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Terms in this set (9)
Monopoly
-a firm is a monopoly if it is the sole seller of its product and if its product does not have any close substitutes
Barriers to Entry
-fundamental cause of a monopoly
-when other firms can not enter the market and compete with monopoly
-3 Main Sources:
1) Monopoly resources- a key resource for production is owned by a single firm
2) Government regulation-govt gives firm exclusive right to produce some good or service
3) The production process- a single firm can produce output at a lower cost then can a larger number of firms
Natural Monopoly
-An industry is this when a single firm can supply a good or service to an entire market at a lower cost then could two or more firms
-EX: distribution of water-average total cost of water is lowest if a single firm serves entire market or a single bridge for one small town
-less concerned with new entrants eroding its monopoly power
Competitive Firm vs. Monopoly
-Firm is small relative to its market where it operates and has no influence over price of output and takes price as given by market conditions. Faces a horizontal demand curve.
-A monopoly is sole producer of good in market, it can alter price of good by adjusting how much it supplies market. Demand curve slopes downward and is the market demand curve
Total Revenue
Quantity Sold x Price
Average Revenue
Total Rev divided by Quantity sold
Marginal Revenue
Change in total rev divided by change in output as it increases by 1 unit
-MR is always less than price of good because monopoly faces downward sloping demand curve
Profit Maximazation
-the monopolists profit-maximizing quantity of output is determined by the intersection of the marginal cost curve and marginal revenue curve
Efficient level of output
-on graph were marginal cost curve and demand curve intersect