Step+15.+Monopoly-+Clair

=**CHAPTER 15 - MONOPOLY ** = = = 

=__**Key terms**__ =  monopoly natural monopoly price discrimination

 = __**What we will learn**__ =  what is a monopoly, and what does it arise from? Why does monopoly face a downward-sloping demand curve for product? Why is monopoly's marginal revenue always below the price of its good? how does monopoly firm maximize profit? How is monopoly similar to the competitive firm? How does monopoly cause deadweight loss? How can policymakers respond to inefficiency of monopoly behavior? How does monopolists raise their profits?

= __**INTRODUCTION**__ = = =  Monopoly means single seller. Since there is only one seller, it is the //price maker//. Monopoly, as you will see later, can cause deadweight loss and hurt the economic well-being of the society, but the government can improve market outcomes as we saw in Chapter 1. Let's look at the details and find out what monopoly is, how it causes deadweight loss, and what the government does to better the market outcome!

media type="custom" key="5212919" = __**TOPICS**__ = = =  Before we go into details.. keep in mind that - monopoly - a firm that is the sole seller of a product without close substitutes - monopolies' profits are NOT unlimited: high prices reduce the amount that their customers buy - unlike the competitive markets which are guided by invisible hand to promote general economic well-being, monopoly firms are unchecked by competition, which can lead to inefficiency.

- here is why - barriers to entry: a monopoly remains the only seller in the market because the other firms are blocked from entry - monopoly resources - a key resource is owned by a single firm - government-created monopolies - the government gives a single firm the exclusive right to produce some good or service <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif;">*copyright - government guarantees that no one can print and sell the work without the owner's permission - natural monopolies - the costs of production make a single producer more efficient than a large number of producers <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif;"> MONOPOLY VERSUS COMPETITION//** Competitive firms - they are price takers, so no matter what the quantity of output is, the price is the same - therefore, the demand curve is horizontal Monopolies - they are the sole producers in the market, it faces downward-sloping market demand curve - if the monopolist raises the price of its good, consumers buy less of it, so the quantity of output is small. On the other hand, if the monopolists reduce the quantity of output it sells, the goods become more rare, and the price of output increases.
 * //WHY MONOPOLIES ARISE//**
 * The sources of barriers:
 * <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif;">rarely happens
 * <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif;">patent - gives exclusive rights to manufacture
 * benefits - creativeness, cost - monopoly pricing
 * <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif;">the firm's average-total-cost curve continually declines: as quantity of output increases, ATC decreases (usually, ATC is U-shaped)
 * //HOW MONOPOLIES MAKE PRODUCTION AND PRICING DECISION

competitive market/ monopoly

- a monopolist's marginal revenue is ALWAYS less than the price of its goods because a monopoly faces a downward-sloping demand curve - still don't get it? When a monopoly increases production by 1 unit, it must reduce the price it charges for every unit it sells, and this cut in price reduces revenue on the units it was already selling.
 * //A MONOPOLY'S REVENUE//**




 * //PROFIT MAXIMIZATION//**

A monopoly can maximize profit by choosing the quantity at which Marginal Revenue = Marginal Cost (where C (marginal cost) and B (marginal revenue)) intersect. Then the demand curve can be used to find the price. On the graph, that'd be where P3 meets line A (the demand curve)

Profit = (Price - average total cost) times quantity. On the graph, it's the box that P3 and P1 creates.

- total surplus measures the economic well-being of buyers and surplus - a benevolent monopolist would produce the quantity at which the demand curve and the marginal cost curve (which is like the supply curve) intersect (REMEMBER: TOTAL SURPLUS = CONSUMER SURPLUS + PRODUCER SURPLUS, so that intersection is the most socially efficient quantity. - HOWEVER, monopolists produce LESS than the socially efficient quantity of output
 * //WELFARE COST OF MONOPOLY//**
 * //THE DEADWEIGHT LOSS//**



- increasing competition with antitrust laws <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif;">- regulation <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif;">- public ownership <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif;">- doing nothing <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif;">
 * //PUBLIC POLICY TOWARDS MONOPOLIES//**
 * <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif;">Antitrust laws prevent mergers/prevent markets from being less competitive business
 * <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif;">government regulates the price
 * <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif;">rather than regulating a natural monopoly that is run by a private firm, the government can run the monopoly itself
 * <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif;">it's the government's place to try to reduce the problem of monopoly!

- price discrimination - the business practice of selling the same good at different prices to different customers - benefit: NO DEADWEIGHT LOSS
 * //PRICE DISCRIMINATION//**

- examples: movie tickets, airline prices, discount coupons, financial aid, and quantity discounts

=<span style="color: #000080; font-family: 'Trebuchet MS',Helvetica,sans-serif;"> __**CONCLUSION**__ = =<span style="font-family: 'Trebuchet MS',Helvetica,sans-serif;"> = <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif;"> As a quick review for conclusion, watch the video below! media type="youtube" key="F9qw7LeeCKw" height="364" width="445"

Monopoly: "Ooh! I cause deadweight loss and cause inefficiency in economy! But that's okay.. the government will help, and we can price discriminate... As long as we profit, we're good."

<span style="font-family: 'Trebuchet MS',Helvetica,sans-serif;"> =<span style="color: #000080; font-family: 'Trebuchet MS',Helvetica,sans-serif;"> __<span style="color: #000080; font-family: 'Trebuchet MS',Helvetica,sans-serif;">**SOURCES** __= =<span style="font-family: 'Trebuchet MS',Helvetica,sans-serif;"> = <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif;"> http://riverdaughter.files.wordpress.com/2009/07/logo-mr-monopoly.jpg http://www.youtube.com/watch?v=F9qw7LeeCKw http://www.emh.co.kr/images/competition_demand_curve.gif http://www.toamillion.com/blog/wp-content/monopoly.jpg http://www.whcbridge.com/fig15-3.jpg http://www.rh.edu/~stodder/BE/MonopA1.gif