Monopoly: Price Searcher Monopoly defined –One firm –Unique product, no close substitutes –Barriers to entry

Barriers to Entry Government franchise Economies of scale Ownership of vital resource

Short-Run Equilibrium in Monopoly Monopoly demand curve –Revenue considerations –Cost considerations Monopoly equilibrium

Evaluation of Monopoly Wealth transfers from consumer to producer Positive economic profit in LR P>MC, price not a good cost signal Restricted output DWL to society Rent seeking behavior Lack incentives for innovation and efficiency

Multi-Plant Monopoly Single firm, operating multiple plants with different cost structures Graphical example Mathematical example

Multi-Plant Monopoly

Natural Monopoly Decreasing cost industry –Distributional economies –Economies of scale Solutions to problems –Franchise or nationalize –Regulate

Price Discrimination Block pricing Peak load pricing Case study: College tuition

Comparing Monopoly with Perfect Competition Social cost of monopoly –Graphically –Algebraically