1. 1

2.  exists when a single firm is the sole producer of a product for which there are no close substitutes. 2

3. 1. Single seller 2. No close substitutes 3. “Price maker” 4. Blocked entry 3

4. 1. Economies of scale 2. Legal barriers 3. Ownership or control of resources 4. Strategic barriers 4

5.  Occurs when lowest unit costs depend on the existence of a small number of larger firms or one firm. ◦ New firms cannot afford to enter the market ◦ Public utilities 5

6.  Patents provide the exclusive right to produce a product for a fixed number of years.  licenses 6

7.  International Nickel Co. of Canada controlled 90% of world’s nickel reserves.  Professional sports leagues control player contract and leases on major city stadiums. 7

8.  Monopoly firms use price & other strategic barriers to keep competition out of the industry. 8

9.  3 assumptions 1.Monopoly is secured by patents, economies of scale, or resource ownership. 2.firm is not regulated by government. 3.a single‑price monopolist 9

10. Why?  monopolist must lower the price to sell an additional unit.  Added revenue will be price of last unit sold 10

11. (1) Quantity Of Output (2) Price (Average Revenue) (3) Total Revenue (1) X (2) (4) Marginal Revenue (5) Average Total Cost (6) Total Cost (1) X (5) (7) Marginal Cost (8) Profit (+) or Loss (-) 0 1 2 3 4 5 6 7 8 9 10 $172 162 152 142 132 122 112 102 92 82 72 $0 162 304 426 528 610 672 714 736 738 720 $162 142 122 102 82 62 42 22 2 -18 $190.00 135.00 113.33 100.00 94.00 91.67 91.43 93.75 97.78 103.00 $100 190 270 340 400 470 550 640 750 880 1030 $90 80 70 60 70 80 90 110 130 150 $-100 -28 +34 +86 +128 +140 +122 +74 -14 -142 -310 Revenue Data Cost Data ] ] ] ] ] ] ] ] ] ] ] ] ] ] ] ] ] ] ] ] Can you See Profit Maximization? 11

12. LO 8.1 12 P Q D 132 132 When price decreases from $142 to $132, one more unit is sold… Gain = $132 $142 1 2 3 4 5 6 1 2 3 4 5 6 Revenue will increase by $132 with the extra unit sold Figure 8- 2

13. LO 8.1 13 1 2 3 4 5 6 1 2 3 4 5 6 P Q D but revenue loss = $10 X 3 units Loss = $30 When price decreases from $142 to $132, one more unit is sold… Gain = $132 Marginal revenue = $132-30 = $102 < $132 (price) Marginal revenue = $132-30 = $102 < $132 (price) 132 132 $142

14.  firm controls output and price  but is not free of market forces, since the combination of output and price that can be sold depends on demand. 14

15.  Total revenue test 15

16. LO 8.1 16 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 Q Total revenue Price per unit 200 150 200 50 750 500 250 TR D Inelastic 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 Q MR Elastic TR Figure 8- 3

17.  MR = MC rule  No supply curve 17

18.  Cannot charge the highest price it can get ◦ Profits are max where MR = MC  Total profit is the goal ◦ Not unit profit  Monopolists can receive economic profits greater than zero in the long run. ◦ Losses can also occur → shut down in LR 18

19.  Monopolist produces less  Monopolist charges higher price  P > MC 19

20.  Productive efficiency?  Allocative efficiency? 20

21.  More unequal  Transfer of income from consumers to business owners 21

22.  Regulatory commission ◦ socially optimal price ◦ Fair-return price 22