Chapter 10 market power and pricing

These barriers may be interrelated, making entry that much more formidable.

how to calculate profit maximizing price and quantity for monopoly

Monopsony 16 — General equilibrium and economic efficiency A firm that sets or picks price based on its output decision is called a price setter A firm that sets or picks price based on its output decision.

If this is the case, one firm in the industry will expand to exploit the economies of scale available to it. Monopsony power and monopoly power will tend to counteract each other.

the accompanying diagram shows the demand marginal revenue and marginal cost of a monopolist

Slide 33 of 44 If another firm attempted to enter the industry, the natural monopolist would always be able to undersell it. Slide 27 of 44 Firms might even collude in violation of the antitrust lawsagreeing to limit output and raise prices.

A drug company has a monopoly on a new patented medicine

The opposite is true if demand is relatively inelastic, as in b. Slide 8 of 44 Contrast the situation shown in Panel a with the one faced by the monopoly firm in Panel b. In b , the competitive seller also takes price as given. Utilities that distribute electricity, water, and natural gas to some markets are examples. Still, Firm A has some monopoly power: Its profit-maximizing price is R1. Apply the marginal decision rule to explain how a monopoly maximizes profit. Thus the profit-maximizing Q is such that the incremental profit resulting from a small increase in Q is just zero i. In assuming there is one firm in a market, we assume there are no other firms producing goods or services that could be considered part of the same market as that of the monopoly firm.

Once it determines that quantity, however, the price at which it can sell that output is found from the demand curve. Define what is meant by a natural monopoly.

Which of the following does not create a barrier to entry?

What are the sources of his monopoly power? John and Mary Doe run the only shoe repair shop in town. As always with models, we make the assumptions that define monopoly in order to simplify our analysis, not to describe the real world. Thus the profit-maximizing condition is that , or Slide 9 of 44 US Example In , the Archer Daniels Midland Company ADM successfully lobbied the Clinton administration for regulations requiring that the ethanol ethyl alcohol used in motor vehicle fuel be produced from corn. More from OC We will show that a monopoly firm is likely to produce less and charge more for what it produces than firms in a competitive industry. Define what is meant by a natural monopoly. Maroun has even proposed building a new bridge just next to the existing bridge. Moroun has so far held on.
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Chapter 10 Market Power: Monopoly and Monopsony