Test 4 Flashcards
monopoly
the single supplier of a product that has no close substitutes
barriers to entry - legal barriers
a) Patents- new drugs can be patented for 18 years
b)copyright- exists for your whole life, plus 70+
C) Licensing- electricians, plumbers, DR.
barriers to entry- economies of sale
- also called natural monoply - a firm that can produce at a lower cost than a number of smaller firms can
- ex public utility, and internet
- only one firm can survive in a natural monopoly industry
barriers to entry - control over an important input
this is the rarest
-ex: deebers diamonds-using 80% of the diamonds, and ALOCA- an important input for alumion
average revenue is always equal to price
correct
single price monopolists
price effect vs the output effect
a monoplist will alway operate on the
elastic portion
can positive economic profit work in the long run for a monopolist?
yes, since there is a barriers to entry
does monopoly cause inefficiency?
yes, monopoly is another example of market failure
monopolists want to produce where..
MR and MC equal
monopoly
higher price, fewer consumers
price exceeds MR for the
monopolists
government regualtion- no regulation
applies to a natural monopoly
-no regulation- high prices, small output, large profits for the monopolists , large deadweight loss
government regulation- marginal cost pricing
low price, large output, negative profit, and no deadweight loss, this doesn’t work in the long run
government regulation-average cost pricing
medium prices, some deadweight loss, normal profit, medium output, normal profit for the monopolists, this is a compromise solution
