9: Monopoly
- Page ID
- 181241
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\(\newcommand{\avec}{\mathbf a}\) \(\newcommand{\bvec}{\mathbf b}\) \(\newcommand{\cvec}{\mathbf c}\) \(\newcommand{\dvec}{\mathbf d}\) \(\newcommand{\dtil}{\widetilde{\mathbf d}}\) \(\newcommand{\evec}{\mathbf e}\) \(\newcommand{\fvec}{\mathbf f}\) \(\newcommand{\nvec}{\mathbf n}\) \(\newcommand{\pvec}{\mathbf p}\) \(\newcommand{\qvec}{\mathbf q}\) \(\newcommand{\svec}{\mathbf s}\) \(\newcommand{\tvec}{\mathbf t}\) \(\newcommand{\uvec}{\mathbf u}\) \(\newcommand{\vvec}{\mathbf v}\) \(\newcommand{\wvec}{\mathbf w}\) \(\newcommand{\xvec}{\mathbf x}\) \(\newcommand{\yvec}{\mathbf y}\) \(\newcommand{\zvec}{\mathbf z}\) \(\newcommand{\rvec}{\mathbf r}\) \(\newcommand{\mvec}{\mathbf m}\) \(\newcommand{\zerovec}{\mathbf 0}\) \(\newcommand{\onevec}{\mathbf 1}\) \(\newcommand{\real}{\mathbb R}\) \(\newcommand{\twovec}[2]{\left[\begin{array}{r}#1 \\ #2 \end{array}\right]}\) \(\newcommand{\ctwovec}[2]{\left[\begin{array}{c}#1 \\ #2 \end{array}\right]}\) \(\newcommand{\threevec}[3]{\left[\begin{array}{r}#1 \\ #2 \\ #3 \end{array}\right]}\) \(\newcommand{\cthreevec}[3]{\left[\begin{array}{c}#1 \\ #2 \\ #3 \end{array}\right]}\) \(\newcommand{\fourvec}[4]{\left[\begin{array}{r}#1 \\ #2 \\ #3 \\ #4 \end{array}\right]}\) \(\newcommand{\cfourvec}[4]{\left[\begin{array}{c}#1 \\ #2 \\ #3 \\ #4 \end{array}\right]}\) \(\newcommand{\fivevec}[5]{\left[\begin{array}{r}#1 \\ #2 \\ #3 \\ #4 \\ #5 \\ \end{array}\right]}\) \(\newcommand{\cfivevec}[5]{\left[\begin{array}{c}#1 \\ #2 \\ #3 \\ #4 \\ #5 \\ \end{array}\right]}\) \(\newcommand{\mattwo}[4]{\left[\begin{array}{rr}#1 \amp #2 \\ #3 \amp #4 \\ \end{array}\right]}\) \(\newcommand{\laspan}[1]{\text{Span}\{#1\}}\) \(\newcommand{\bcal}{\cal B}\) \(\newcommand{\ccal}{\cal C}\) \(\newcommand{\scal}{\cal S}\) \(\newcommand{\wcal}{\cal W}\) \(\newcommand{\ecal}{\cal E}\) \(\newcommand{\coords}[2]{\left\{#1\right\}_{#2}}\) \(\newcommand{\gray}[1]{\color{gray}{#1}}\) \(\newcommand{\lgray}[1]{\color{lightgray}{#1}}\) \(\newcommand{\rank}{\operatorname{rank}}\) \(\newcommand{\row}{\text{Row}}\) \(\newcommand{\col}{\text{Col}}\) \(\renewcommand{\row}{\text{Row}}\) \(\newcommand{\nul}{\text{Nul}}\) \(\newcommand{\var}{\text{Var}}\) \(\newcommand{\corr}{\text{corr}}\) \(\newcommand{\len}[1]{\left|#1\right|}\) \(\newcommand{\bbar}{\overline{\bvec}}\) \(\newcommand{\bhat}{\widehat{\bvec}}\) \(\newcommand{\bperp}{\bvec^\perp}\) \(\newcommand{\xhat}{\widehat{\xvec}}\) \(\newcommand{\vhat}{\widehat{\vvec}}\) \(\newcommand{\uhat}{\widehat{\uvec}}\) \(\newcommand{\what}{\widehat{\wvec}}\) \(\newcommand{\Sighat}{\widehat{\Sigma}}\) \(\newcommand{\lt}{<}\) \(\newcommand{\gt}{>}\) \(\newcommand{\amp}{&}\) \(\definecolor{fillinmathshade}{gray}{0.9}\)- 9.0: Introduction
- This page examines the formation and impact of monopolies, highlighting barriers to entry and market behavior. It presents historical examples such as the East India Company and the U.S. cotton industry, connecting monopolies to major events like the American Revolution and Civil War.
- 9.1: How Monopolies Form- Barriers to Entry
- This page examines various monopolies, including natural and legal, emphasizing barriers to entry that limit competition. It outlines how economies of scale can lead to natural monopolies, such as utility companies, and discusses the impact of patents on innovation. Additionally, it details the evolution of utility providers due to deregulation and technological advancements, while highlighting ongoing government restrictions in key sectors.
- 9.2: How a Profit-Maximizing Monopoly Chooses Output and Price
- This page examines monopolies versus perfect competition, focusing on demand curves, profit maximization, and inefficiencies. Monopolies face downwards-sloping demand and marginal revenue, maximizing profits at the output level where marginal cost equals marginal revenue, as shown in the HealthPill example. Historical monopolies like the East India Company impacted significant events, suggesting that monopolistic practices could alter historical outcomes.
- 9.3: Key Terms
- This page discusses essential economic concepts like allocative efficiency, barriers to entry, and intellectual property forms such as copyrights and patents. It differentiates between legal and natural monopolies, covers marginal profit and predatory pricing strategies, and mentions deregulation as the lifting of governmental controls. Additionally, it highlights trade secrets and trademarks as tools for firms to safeguard their innovations and brand identities.
- 9.4: Key Concepts and Summary
- This page discusses monopolies and their formation due to barriers to entry that limit competition, such as economies of scale and legal restrictions. Monopolists maximize profits by setting prices where marginal revenue equals marginal cost, which often leads to inefficiencies and higher prices compared to competitive markets. This results in lower quantities produced and minimal incentives for innovation due to a lack of competition.
- 9.5: Self-Check Questions
- This page discusses barriers to market entry, categorizing them into government-enforced, non-government, or barrier-free scenarios. It explores the effects of monopoly breakup on electricity pricing, the implications of reduced patent protection on research, production strategies under declining demand for monopolized products, and the influence of price discrimination on monopoly profits.
- 9.6: Review Questions
- This page presents a series of questions focused on essential economic concepts regarding monopolies and competition. It distinguishes between monopoly and perfect competition, discusses barriers to entry and types of monopolies, and examines pricing strategies and profit-maximization.
- 9.7: Critical Thinking Questions
- This page discusses economic concepts such as monopoly power, pricing strategies for pharmaceuticals, global antitrust policies, and the role of intellectual property laws in fostering innovation. It raises questions for small firms entering monopolized markets and examines the potential profit decline for monopolies as new competitors emerge, highlighting the dynamics of market competition and regulation.
- 9.8: Problems
- This page examines market structures with varying output and cost scenarios. It discusses a new firm's entry into a market dominated by an incumbent producing 6,000 units, influencing prices and profits. It also explores a monopoly responding to heightened demand, altering demand and marginal revenue curves, impacting price and quantity. Lastly, it contemplates the consequences of a monopolist increasing output beyond optimal levels, questioning consumer valuation at prices above marginal costs.