Economics and monopoly introduction Essay Example for Free

Economics and monopoly introduction EssayCharacteristics Single seller One rigid produces all the production of a particular product No close substitutes Product is unique and if consumers want to buy it they must buy from the monopoliser. Price producer Since the monopolist is the sole supplier of the product, it can change the price by changing output. The degenerate faces a downward sloping demand curve, so change magnitude output lowers the price, decreasing output increases the price. The firm will set a price that maximizes its profits. Blocked entry Entry to the market is totally blocked, meaning the firm has no immediate competitors. Barriers to entry may be economies of scale, legal, technological or another type. Nonprice competition Since it has no competitors a monopolist cannot compete on price. Therefore, to draw and quarter new consumers the firm must engage in non-price competition such as advertising and public relations campaigns to promote its products a ttributes. Examples of Monopolies? www. welkerswikinomics. com 3 Unit 2. 3. 3 Pure Monopoly Monopoly Demand as seen by a Monopolist.Three assumptions 1) Entry is totally blocked 2) The monopolist is unregulated by any government so can charge whatever price it wants. 3) The firm is a single price seller. It sells all units of output at the same price. A monopolist faces a downward sloping Demand curve. The firm D curve is the market D curve A monopolist can sell additional output only by lowering its price (due to the law of demand). A monopolist must lower the price of all of its output, not just the marginal units, since it is a single-price seller. As a result, as output increases, the firms marginal revenue falls faster than the price. www. welkerswikinomics. com 4 Unit 2. 3. 3 Pure Monopoly Monopoly Demand as seen by a Monopolist Demand and Marginal Revenue Q 0 1 P1 2 3 4 5 P2 6 7 8 9 P3 10 P 172 162 152 142 132 122 112 102 92 82 72 TR=PxQ) 0 162 304 426 528 610 672 714 736 738 720 Demand and MR for a Monopolist P MR=? TR/? Q P1 P2 P3 D=AR=P Q1 Q2 Q3 Q MR Based on the above graph, over which range of output would a monopolist NEVER produce?Why? What information is needed to determine the profit maximizing train of output for this monopolist? www. welkerswikinomics. com 5 Unit 2. 3. 3 Pure Monopoly Monopoly Demand as seen by a Monopolist Elasticity and the monopoly Demand curve come across the elastic range of the demand curve. Identify the inelastic range of the demand curve. P Demand and MR PED1 P1 PED=1 Question Why wont a monopolist ever produce at a level of output where it is in the inelastic range of its demand curve?