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Market Failure #3 Monopolies

Market Failure #3 Monopolies. Monopoly Review. Draw a monopoly making a profit. Label price, output, and profit. Identify three specific reasons why monopolies are bad. Label the Fair Return price and output. Label the Socially Optimal price and output.

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Market Failure #3 Monopolies

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  1. Market Failure #3 Monopolies

  2. Monopoly Review • Draw a monopoly making a profit. Label price, output, and profit. • Identify three specific reasons why monopolies are bad. • Label the Fair Return price and output. • Label the Socially Optimal price and output. • Explain why taxing a monopoly is a bad idea.

  3. Monopoly Socially Optimal $9 8 7 6 5 4 3 2 Unregulated P MC ATC Fair Return Profit =$5 D MR Q 3 1 2 3 4 5 6 7 8 9 10

  4. Government in Action:Antitrust Laws Legislative Executive Judicial

  5. WHAT ARE ANTITRUST LAWS? • Laws designed to prevent monopolies and promote competition. • After the Civil War, advances in technology and transportation lead to national markets. • Eventually only a few firms began to dominate industries: Railroads, Steel, meatpacking, coal, etc. • Why are monopolies a Market Failure? • Monopolies destroy the key ingredient of the free market system- Competition. • To fix this MARKET FAILURE the government must get involved.

  6. WHAT DOES THE GOVERNMENT DO? • Legislative Branch • Passed laws designed to stop monopolies • Sherman Act of 1890- • “Every person who shall monopolize …or conspire to monopolize…shall be deemed guilty of a felony.” • Executive Branch • The Federal Trade Commission must approve all corporate mergers. (Like AT&T and…) • When firms use anti-competitive tactics the Department of Justice files suit against them. • Judicial Branch • Supreme Court finds the firm guilty or not guilty and assigns a punishment.

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