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Pure Monopoly

Pure Monopoly. Chapter 11. Barriers to Entry. Scale Economies Big firms enjoy lower production costs than small firms Renders Monopoly Organization more efficient Patents and Licenses Ownership or Control of Resources Strategic Barriers to Entry “Cut-throat Competition”

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Pure Monopoly

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  1. Pure Monopoly Chapter 11

  2. Barriers to Entry • Scale Economies • Big firms enjoy lower production costs than small firms • Renders Monopoly Organization more efficient • Patents and Licenses • Ownership or Control of Resources • Strategic Barriers to Entry • “Cut-throat Competition” • Price-slashing aimed at new entrants

  3. Chapter 24 Figure 24.1 Diminishing Returns to Scale

  4. Marginal Revenue in Monopoly • Perfectly competitive firms face perfectly elastic demand at the firm level • Monopoly firms face the industry demand curve • which is downward-sloping • Thus, to increase sales, a monopoly firm must lower the selling price • unlike for a perfectly competitive firm • a monopoly firm’s marginal revenue falls more rapidly than the price

  5. Chapter 24 Table 24.1

  6. Chapter 24 Figure 24.2

  7. Chapter 24 Figure 24.3(a) MR = 0 at Unit-elastic Output

  8. Monopolies always operate in the Elastic Region of Industry Demand, never in the Unit-elastic or Inelastic Regions

  9. Chapter 24 Figure 24.3(b)

  10. Chapter 24 Figure 24.4 Profit Maximum for a Monopolist

  11. Chapter 24 Table 24.2

  12. Chapter 24 Figure 24.5 Loss-minimizing Output for a Monopolist

  13. Chapter 24 Figure 24.6 Allocative and Productive Inefficiencyunder Monopoly

  14. Monopolists and Consumer Surplus • Monopolists capture some Consumer Surplus • Consumers would be better served by Perfect Competition • Perfectly-discriminating Monopolists • charge each customer their marginal benefit • capturing all consumer surplus

  15. Chapter 24 Figure 24.7 X-inefficiency

  16. Chapter 24 Figure 24.8 A Perfectly-discriminating Monopolist

  17. Chapter 24 Figure 24.9 A Monopoly under Regulation

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