1. The market consists of only one seller
2. product that has no close substitutes
3. barriers to entry are high
Monopoly firm is a price searcher
MC = MR
1. How much do we produce?
2. How much do we charge?
$14 = 15,000
$13 = 20,000
Easier to determine price in perfectly competitive markets
$5,000, $10,000, $15,000?
Sells for | $10 |
Per unit cost | $6 |
Sold | 1000 units |
Profit | ? |
Average Total Cost higher than price sold =
Barriers
Franchise: Right granted to a firm by gov’t to provide a good or service
Patent: Gov’t license for a set period that excludes others from making, using, or selling an invention
Give author's right to publish, print or sell their intellectual productions for a period of time
Total Cost
—————————=ATC
Per-unit Cost
1,000
————————— = 1 1,000
Average Total cost is total cost divided by quantity of output
Price | $10 |
Average Total Cost | $4 |
Per-unit Profit | ? |
| Company A | Company B |
Average Total Cost | $5 | $8 |
Sell | $6 | $6 |
Profit | $1 | -$2 |
| Company A | Company B | Company C |
Average Total Cost | $4 | $7 | $7 |
Sell | $10 | $10 | $10 |
Profit | $6 | $3 | $3 |
New Price | $6 | $10 | $10 |
Profit | $2 | -$3 | -$3 |
| | Will go Bankrupt | Will go Bankrupt |
Government Monopoly: monopolies that are legally protected from competition
price discrimination: when a seller charges different buyers different prices for the same product
Tying contracts = illegal
Made unfair methods of competition in commerce illegal.
Robinson-Patman Act of 1936: Protected small businesses
Stopped false and deceptive acts or practices by business
If a natural monopoly is guaranteed a certain rate of profit, it also has little incentive to keep costs down.