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

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

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

 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

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

 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

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

 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

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

(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 (-) $ $ $ $ $ $ $ Revenue Data Cost Data ] ] ] ] ] ] ] ] ] ] ] ] ] ] ] ] ] ] ] ] Can you See Profit Maximization? 11

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

LO 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 = $ = $102 < $132 (price) Marginal revenue = $ = $102 < $132 (price) $142

 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

 Total revenue test 15

LO Q Total revenue Price per unit TR D Inelastic Q MR Elastic TR Figure 8- 3

 MR = MC rule  No supply curve 17

 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

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

 Productive efficiency?  Allocative efficiency? 20

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

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