Chapter+15

MONOPOLY = = = media type="file" key="sss.m4v" width="300" height="300" = = = =KEY TERMS=
 * Monopoly
 * Natural monopoly
 * Price discrimination

=Main Idea= In this chapter, it is important to understand and analyze how monopoly plays a role in a market.

=CONCEPT=
 * Monopoly** arises when there is only a single firm in a market. Since there is only a single firm in a market, the monopoly is considered price maker.

There are Three basic main ideas that monopolies are classified into:


 * 1) A key resource is possessed
 * 2) The government gives a firm exclusive rights to produce goods
 * 3) A firm can produce a good at a more efficient rate than a large number of firms

A key resource is possessed when a firm has resources such as water where there are no close substitutes. Copy rights is one way the government fund firms to have monopoly in a market. The **natural monopoly** arises when a single firm does better than many groups in the market.

=Monopoly VS Competition=


 * The key difference between these two markets are their influence on the price of its output.
 * The demand curve of each firms are different
 * Competitive demand curve is horizontal
 * Monopoly demand curve is downward slope





Because monopoly is the sole seller of the market, the demand of the product depends on the price of the output.

=Monopoly Profit=

In a monopoly market, it does not matter whether the market is in a long run or in a short run because there is only one firm. Monopolies usually price at a level higher than the intersection of marginal cost and revenue, the marginal revenue is always less than the price.



=Regulations=

Since monopolies can dominate the market, most of the monopolies are regulated.


 * Making more competitive
 * Regulating behavior
 * Turning private firms to public
 * Doing nothing

-There are certain laws such as antitrust laws, which try to limit the power of monopolies within the market by making more competition. -Public ownership can be a practice, but it may not be profit motive. -To economists, doing nothing is the best because the role of government is hard to judge =PRICE DISCRIMINATION=

If the monopoly sell at a product at its maximizing price, the firm will face dead weight loss. This is because there are certain buyers who are willing to buy the product at a lower price. Therefore, to maximize the profit, the monopoly uses a method called **price discrimination, setting different prices for different buyers.**

For example, there are people who are willing to buy an album at $100, but there are also people who are willing to buy the album at $30. If the monopoly only sells the album at $100, only those who are willing to buy the album at $100 will buy the product. Therefore, the possible profit from selling the album to those buyers who are willing to buy at $30 becomes a dead weight loss.



To solve this problem efficiently, monopolies try to set different prices for different people. For example, in the example above, the monopoly can sell new album at $100 to those hard core fans. Afterward, the monopoly can decrease the price of the album to $30 so that other consumers can buy the album. In this way, the firm can maximize their profit.

In the beginning of the chapter, we have discussed that rational people think at the margin. Thus, price discrimination is part of thinking at the margin.

=CONCLUSION=