1. Are Monopolies Desirable?

2. Characteristics of Monopolies
Firm is the Industry
Allocatively Inefficient
Firm is a Price maker
Demand > Marginal Revenue
Barriers to Entry

3. Review Efficiency
1. allocative efficiency: P = MC 2. productive efficiency: P = ATC at its minimum point

4. Allocative Efficiency
optimal distribution of goods and services.
socially optimum price.
An output level where the price = Marginal Cost (MC)
price consumer's are willing to pay is equivalent to marginal utility
Optimal distribution: marginal utility of the good =MC
Perfectly Competitive firms produce allocatively efficient level of output
Monopoly sets a price of Pm. allocatively inefficient
Price is greater than MC.

5. A Monopoly’s impact on consumer surplus and deadweight loss.
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6. Monopolies Are…. allocative inefficiency: P >MC
a) underallocation of resources smaller output than competitive markets b) higher prices than competitive markets
2. productive inefficiency
a) not producing at minimum ATC b) cost complications like natural monopolies due to economies of scale – one firm can produce at a lower cost than others

7. Types of Monopolies
Natural- often utility companies- fair rate of return price
Unregulated- created by capturing economies of scale- profit maximizing
Regulated- government controlled (maybe even subsidized- socially optimal price

8. Image From http://www. harpercollege

9. Pricing and Monopolies
Be Aware of where the ATC is when measuring monopoly profit!
At a fair return price there are zero economic profits being made
Price discrimination is possible

11. Can a Monopoly experience loss?
ABSOLUTELY! Image from

12. What is a reasonable level of profits for a monopoly to make?
Hmm
What is a reasonable level of profits for a monopoly to make?
Should all monopolies be regulated?
Which part of the demand curve will a natural monopoly make its price
Why can monopolies practice price discrimination?