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ASSESSING MONOPOLY

ASSESSING MONOPOLY. Microeconomics Made Easy by William Yacovissi Mansfield University William Yacovissi All Rights Reserved. ASSESSING MONOPOLY. Why are monopolies illegal? If a dominant market position is gained through legitimate market activity, why is it illegal

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ASSESSING MONOPOLY

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  1. ASSESSING MONOPOLY Microeconomics Made Easy by William Yacovissi Mansfield University William Yacovissi All Rights Reserved

  2. ASSESSING MONOPOLY • Why are monopolies illegal? If a dominant market position is gained through legitimate market activity, why is it illegal • Perhaps the main reason monopolies are illegal is that the existence of a monopoly gives the monopoly firm undue power over the consumer

  3. ASSESSING MONOPOLY • Economically, this power can be examined graphically by comparing the monopoly equilibrium with the competitive equilibrium. Refer to page 218 or the following slide • The competitive firm is forced by market conditions to set the price equal to the marginal cost of the product. Point C on the diagram. The monopolist will choose point B

  4. ASSESSING MONOPOLY • What’s the difference between points C and B. • The green rectangle represents money transferred from the consumers to the producer as a result of monopoly power. Under competition the price would be Pc. With monopoly power it’s Pm.

  5. ASSESSING MONOPOLY • The pink triangle represents the loss to society from the lower production of the good. Under competition Qc of the product would be produced. Under monopoly Qm is produced. • The reduced production represents a welfare loss to society called Deadweight Loss.

  6. ASSESSING MONOPOLY

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