A MONOPOLY’S PROFIT

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 A MONOPOLY’S PROFIT This equation for profit (which also holds for competitive firms) allows us to measure the monopolist’s profit in our graph. Consider the shaded box in ‘Figure 5. The height of the box (the segment BC) is price minus average total cost, P – ATC. which is the profit on the typical unit sold. The […]

PROFIT MAXIMIZATION

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PROFIT MAXIMIZATION Now that we have considered the revenue of a monopoly firm, we are ready to examine how such a firm maximizes profit. Recall from Chapter 1 that one of the Ten Principles of Economics is that rational people think at the margin. This lesson is as true for monopolists as it is for competitive firms. […]

A MONOPOLY’S REVENUE

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A MONOPOLY’S REVENUE Consider a town with a single producer of water. Table 1 shows how the monopoly’s revenue might depend on the amount of water produced. TABLE 1 A Monopoly’s Total, Average, and Marginal Revenue The first two columns show the monopolist’s demand schedule. If the monopolist produces 1 gallon of Iterate, it can sell […]

MONOPOLY VERSUS COMPETMON

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MONOPOLY VERSUS COMPETMON The key difference between a competitive firm and a monopoly is the monopoly’s ability to influence )he price of its output. A competitive firm is small relative to ‘the market in which it operates and, therefore, I has no power to influence the price of its output. It takes the price as given by […]

How MONOPOLIES MAKE PRODUCTION AND PRICING DECISIONS

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How MONOPOLIES MAKE PRODUCTION AND PRICING DECISIONS Now that we know how monopolies arise, we can consider how a monopoly firm decides how much of its product to make and what price to charge for it. The analysis of monopoly behavior in this section is the starting point for evaluating whether monopolies are desirable and’ what policies […]

NATURAL MONOPOLIES

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NATURAL MONOPOLIES An industry is a natural monopoly when a single firm can supply a good or service to an entire market at a lower cost than could two or more firms. A natural monopoly arises when there are economies of scale over the relevant range of output. Figure 1 shows the average total costs of a […]

GOVERNMENT-CREATED MONOPOLIES

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GOVERNMENT-CREATED MONOPOLIES In many cases, monopolies arise because the government has given one person or firm the exclusive right to sell some good or service. Sometimes the monopoly arises from the sheer political clout of the would-be monopolist. Kings, for example, once granted exclusive business licenses to their friends and allies. At other times, the government grants a […]

CASE STUDY

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CASE STUDY HE DEBEERS DIAMOND MONOPOLY A classic example of a monopoly that arises from the ownership of a key resource is DeBeers, the South African diamond company. The company was founded in 1888 by Cecil Rhode-s, an English businessman ‘(and benefactor for the Rhodes scholarship), when he merged two of the biggest mines in the country. Rhodes […]

MONOPOLY RESOURCES

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MONOPOLY RESOURCES The simplest way for a monopoly to arise is for a single firm to own a key resource. For example, consider the market for water in a small town in the Old West. If dozens of town residents have working wells, the competitive model discussed in the preceding chapter describes the behavior of seller. As […]

WHY MONOPOLIES ARISE

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WHY MONOPOLIES ARISE A firm is a monopoly if it is the sole seller of its product and if its product does not have close substitutes. The fundamental cause of monopoly is barriers to entry: A monopoly remains the only seller in its market because other firms cannot enter the market and compete with it. Barriers to […]