1. Ch. 15 Monopoly Only seller of a product …. With out close substitutes
Price Maker
Market power alters the relationship b/w a firm’s price and its costs
Perfect competition: P = …. MC
Monopoly: P and MC? ….
P>MC
Can a Monopoly charge ANY price or earn ANY profit? …
NO…….Confined by the D curve
Govt. can sometimes improve market outcomes

2. Why Monopolies Arise 1. Key Resource define / give ex
2. Govt. Created …why?
Personal/political reasons
Best interest of society (promote efficiency, innovation)
How does the government create a monopoly?
Patent=20yrs
Copyright

3. 3. Natural- define and give ex…
3. Natural- define and give ex…. Utilities (gas, electric, cable) Ex: public goods and common resources -bridge p. 319 Most unattractive to try to enter Over time: with new technology/alternatives/changes in market conditions: All monopolies may give way to a Competitive Market…..(bridge example)

4. Perfect Competition: P and MR? …
P=MR
Monopoly: P and MR? …..
MR < P (except first unit) b/c ….
downward sloping D curve (in order to sell 1 more, must lower price).
So when sell one more, lower P = lower revenue on all units prior (since P=AR and D curve = AR)
Perfect competition: P : MR : D relation?...
P=MR=D
Monopoly: P:MR:D relation? …..
(P>MR….so MR always < D curve)
See ACDC Econ Video (Micro 4.1)

5. P.322: output effect on TR
Sell one more and TR goes up
as %change Q increases at greater rate than % change P decreases…..= Elastic
Price effect on TR
as as %change Q increases at lesser rate than % change P decreases…..= Inelastic
(competitive firm has no price effect)

6. Profit in Perfect Competition vs. Monopoly
P = MR = MC vs P > MR = MC
Compare Supply Curve :
Perfect Competition vs. Monopoly
A MONOPOLY DOES NOT HAVE A SUPPLY CURVE
A supply curve tells us the Q that firms choose
to supply at any given price
Does NOT apply to Monopoly b/c = Price Maker
Compare Profit (formula on graph)
Perfect Competition and Monopoly Profit = P-ATC x Q
Profit in Perfect Competition vs. Monopoly
(short run vs. long run)(why the difference)
Case Study
Monopoly Drugs v. Generic Drugs
20 year patent vs. patent expires

7. Welfare Cost Perfect Competition S=D (P=MC) = Allocative Efficiency
Monopoly : No supply curve; P> MR=MC
Compare Production: Perf Comp vs. Monopoly
Which market structure produces more?
Monopoly: Produce less than allocatively efficient
= not socially efficient
Fail to maximize……
economic welfare …so creates…..
Deadweight loss

8. P=ATC : Fair Market Price; Break Even; Zero Profit
P=MC : Allocatively Efficient; Socially Optimal; Max.Econ. Welfare; Perf.Comp.