ECON202, Week 13 Notes
ECON202, Week 13 Notes Econ202
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This 2 page Class Notes was uploaded by Sydney Dingman on Monday April 18, 2016. The Class Notes belongs to Econ202 at Colorado State University taught by Professor Christopher Blake in Winter 2016. Since its upload, it has received 22 views. For similar materials see Principles of Microeconomics in Economcs at Colorado State University.
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Date Created: 04/18/16
Week 13 ECON202 Notes 4/14/16, Module 29, Monopoly and Public Policy All firms, if given the option, want to act like a monopoly as much as possible o In monopolistic competition and oligopoly, the idea that firms can act like monopolies may be something we want to look for because firms might actually succeed. o If we want to prevent a monopoly outcome, we need to monitor these markets closely. Think about the welfare affects of the monopoly market structure o We want to get a sense of what will happen to total surplus in a monopoly market structure relative to perfect competition o GRAPH 1: Assume firm marginal cost is constant and equal to average total cost Two options for preventing monopoly: o 1. Prevent it from happening in the first place/break them up o 2. Regulate it in some way (allowed to exist but is restricted in what it can and can’t do.) In most cases, we tend to break up or prevent monopolies as in option 1 o Antitrust laws: Laws that eliminate or prevent monopoly Sherman Antitrust Act: law designed to explicitly break up a trust or monopoly that had formed in the oil industry First time in US history that the government actively intervened in a market to prevent monopoly has served as the basis for antitrust legislation to prevent monopolies since Antitrust legislation is not always desirable. o Not desirable when society may be better off if natural monopolies exist o Natural monopolies may be a good thing Markets with economies of scale over the relevant production range Large firm can remain profitable at lower prices, compared to a market where we have multiple firms (many small firms) producing. Options for dealing with a natural monopoly: o 1. Decide to take over ownership (Public Ownership) Government itself takes over and operates the firm Explicit goal is to create a firm that is no longer profit driven o No incentive to get better and the likelihood of corruption becomes greater E.g. Amtrak, USPS, DMV o 2. Direct Regulation Government lets the company control itself but restricts some aspect of its production (usually prices) GRAPH 2 2