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Published byRolf Kelly Modified over 9 years ago
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Monopoly: This is a situation where a single producer (firm) is the sole producer of a good that has no close substitutes.
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Sources of Monopoly: The firm may control the entire supply of raw materials required to produce that output. The firm may have a patent or copyright. The case of “Natural Monopoly”. Economies of Scale may permit only one firm to be efficient in the market. The case of Government Franchises.
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Characteristics of Monopoly: A single seller: A single firm produces all industry output. The monopoly is the industry. Blockaded entry and exit: Firms are heavily restricted from entering or leaving the industry. Imperfect dissemination of information: Cost, price, and product quality information are withheld from uninformed buyers.
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AVC ATC MC MR D P Q0 b c a Quantity Price
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ATC AVC MC MR D Q0 a Quantity Price P c b
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ATC AVC MC MRD 0 a Q P Quantity Price c b n m
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MC MR D P Q0 a b c Quantity Price LAC LMC Q*Q* s r t u
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LMC=LAC PCPC QCQC D MR Quantity Price 0 m n QMQM a b PMPM Monopolist’s Profit Deadweight Loss under Monopoly
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Rate of Return on Stockholders’ Equity: Stockholders’ Equity = The book value of total assets minus total liabilities.
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Monopolistic Competition: It is a form of market organization in which there are many sellers of a heterogeneous or differentiated product, and entry into and exit from the industry are rather easy in the long run. Differentiated Product: Products which are similar but not identical and satisfy the same basic need.
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Characteristics: Large number of buyers and sellers. Product Heterogeneity. Free Entry and Exit. Perfect dissemination of information.
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MC MR D P q0 a b c Quantity Price LAC LMC s r q1q1 D1D1 MR 1
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MC P q0 a Quantity Price LAC LMC D1D1 MR 1
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MC MR D P q0 a b c Quantity Price LMC q1q1 D1D1 LAC d e
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