Economics and monopoly introduction Essay

Characteristics Single seller One sign of the zodiac produces all the production of a particular product No close substitutes Product is unique(p) and if consumers want to buy it they must buy from the monopoliser. Price maker Since the monopolist is the sole supplier of the product, it endure change the damage by ever-changing output. The firm faces a downward sloping acquire curve, so change magnitude output lowers the price, decreasing output increases the price. The firm will set a price that maximizes its profits.Blocked entry Entry to the merchandise is totally stop, nub the firm has no immediate competitors. Barriers to entry may be economies of scale, legal, technological or another type. Nonprice competition Since it has no competitors a monopolist cannot compete on price. Therefore, to attract new consumers the firm must engage in non-price competition such as advertising and public relations campaigns to set up its products attributes. Examples of Monopolies? www. welkerswikinomics. com 3 unit 2. 3. 3 smooth Monopoly Monopoly pauperization as seen by a monopoliser.Three assumptions 1) Entry is totally blocked 2) The monopolist is unregulated by any government so can charge whatever price it wants. 3) The firm is a single price seller. It sells all units of output at the same price. A monopolist faces a downward sloping motive curve. The firm D curve is the market D curve A monopolist can sell spare output only by lowering its price (due to the law of demand). A monopolist must lower the price of all of its output, not save the marginal units, since it is a single-price seller. As a result, as output increases, the firms marginal revenue falls faster than the price. www. welkerswikinomics. com 4 Unit 2. 3. 3 Pure Monopoly Monopoly Demand as seen by a Monopolist Demand and Marginal Revenue Q 0 1 P1 2 3 4 5 P2 6 7 8 9 P3 10 P 172 162 152 142 132 122 112 102 92 82 72 TR=PxQ) 0 162 304 426 528 610 672 714 736 738 720 Demand and MR for a Monopolist P MR=? TR/? Q P1 P2 P3 D=AR=P Q1 Q2 Q3 Q MR Based on the above graph, over which range of output would a monopolist neer produce?why? What information is needed to determine the profit maximize level of output for this monopolist? www. welkerswikinomics. com 5 Unit 2. 3. 3 Pure Monopoly Monopoly Demand as seen by a Monopolist Elasticity and the monopoly Demand curve Identify the elastic range of the demand curve. Identify the dead range of the demand curve. P Demand and MR PED1 P1 PED=1 Question Why wont a monopolist ever produce at a level of output where it is in the inelastic range of its demand curve?