Microeconomics chapter 12 notes
Microeconomics chapter 12 notes ECON 1001
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This 2 page Class Notes was uploaded by Isabelle Hue on Tuesday April 5, 2016. The Class Notes belongs to ECON 1001 at University of Cincinnati taught by Sourushe Zandvakili in Summer 2015. Since its upload, it has received 12 views. For similar materials see Microeconomics in Business at University of Cincinnati.
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Date Created: 04/05/16
PURE MONOPOLY pure monopoly-a market structure in which one ﬁrm sells a unique product, into which entry is blocked, in which the single ﬁrm has considerable control over product price and in which nonprice competition may or may not be found —exists when a single ﬁrm is the sole producer of a product for which there are no close substitutes. • imperfect competition main characteristics of pure monopoly • single seller-single ﬁrm is sole producer/sole supplies of speciﬁc good/service—ﬁrm and industry are synonomous • no close substitutes-product is unique, no substitutes • price maker-(unlike pure competition)-pure monopoly controls the total quantity supplied-thus has considerable control over price ◦ confronts the usual downsloping product demand curve ◦ can change product price by changing the quantity produced ◦ will use its power whenever its advantageous • blocked entry-no immediate competitors b/c certain barriers keep potential competitors from entering the industry ◦ barriers may be ▪ economic ▪ technological ▪ legal ▪ or some other type • nonprice competition-product produced may either be standardized (natural gas and electricity) or diﬀerentiated (windows are frisbees) ◦ standardized product companies engage in mainly public relations advertising ◦ diﬀerentiated product companies often advertise product attributes Examples of Monopoly • pure monopoly is relatively rare • many examples of less pure forms/near monopolies ◦ government regulated utilities- ▪ gas and electric, water companies, cable tv companies, local telephone companies ◦ professional sports teams ◦ small town barber, train station, airline barriers to entry-anything that artiﬁcially prevents the entry of ﬁrms into an industry—factors that prohibit others from entering an industry simultaneous consumption-The same-time derivation of utility from some product by a large number of consumers. network eﬀects- Increases in the value of a product to each user, including existing users, a s the total number of users rises. X-ineﬃceincy - The production of output, whatever its level, at a higher average (and total ) cost than is necessary for producing that level of output. rent-seeking behaviors-The actions by persons, ﬁrms, or unions to gain special beneﬁts from government at the taxpayers' or someone else's expense. price discrimination -: The selling of a product to diﬀerent buyers at diﬀerent prices when the price diﬀerences are not justiﬁed by diﬀerences in cost. socially optimal price-The price of a product that results in the most eﬃcient allocation of an economy's resources and that is equal to the marginal cost of the product. fair-return price-For natural monopolies subject to rate (price) regulation, the price that would allow the regulated monopoly to earn a normal proﬁt; a price equal to average total cost.