1. IB ECONOMICS Unit 2 Micro Economics CH9: Monopoly

2. source: http://news.bbc.co.uk/2/hi/business/8354491.stm | 11th Nov 2009http://news.bbc.co.uk/2/hi/business/8354491.stm

3. Assumptions of the model There is one firm producing the product, the firm therefore is the industry Barriers to entry and exit exist in the market which maintains the monopoly into the LR Due to the barriers to entry monopolies can enjoy abnormal profits in the LR (or suffer losses in the LR)

4. Sources of monopoly power/barriers to entry Economies of scale Natural monopolies Legal barriers Brand loyalty Anti-competitive behaviour

5. Profit maximisation under monopoly CLASS TASK Complete the diagram to show a firm making abnormal profits

6. Loss minimisation under monopoly CLASS TASK Complete the diagram to show a firm making a loss

7. Are monopolies efficient? NotNot productively efficient –But producing more for less? NotNot allocatively efficient Possibly dynamically efficient

8. Welfare loss of Monopoly

9. More QD at a lower P than PC with abnormal profit

10. Are monopolies in the public interest? Possible advantages Economies of scale and MES Research and development Dynamic efficiency International competitiveness Price discrimination Improved quality Cross subsidisation Less choice may be better? Creative destruction Possible disadvantages Diseconomies of scale Allocative efficiency Regressive effects X inefficiency Collusion False choices

11. Evaluation

12. Extended Reading Sloman J., Essentials of Economics 4 th Ed. –P119 to 127 There are also a number of new books in the library which will be excellent reading for this section of the course