Chapter 24 Monopoly
A more concise One-Page Review of Chapter 23 may help with exams.  Updated 9/22/17


I. Introduction
II. Most Monopolies Make a Profit
.
III. Some Monopoly Do Not Make a Profit.
IV. Some Monopolies are Regulated
V.  Economic Analysis of Monopoly
VI. Dead Weight Loss    Please  
I. Introduction
    A. Part II Product and Factor Markets gives an overview of micro Markets
    B. Political Economy Controversies has an interesting economics section.
    C. A monopoly exists when one firm has continued control over a unique market.
        1. By controlling supply and therefore price, a monopoly may earn high
            economic profit.
        2. Continued existence presupposes barriers which restrict market entry and
             the resulting competition.
   D. Barriers to entry
       1. Economies of scale require
           a. Large initial capital investment
           b. Large R & D expenditures
       2. Ownership of raw material, strategically located land, etc.
       3. Patents and copyrights
       4. Unfair competition
       5. Natural barriers to entry lead to natural monopolies.
           a. Economies of scale can be so large that more than one producer is illogical.
           b. Natural monopolies reduce duplication, waste, and confusion.
           c. Natural monopolies are often privately owned and publicly regulated.
           d. Example: public utilities
           e. 1980's and 1990's deregulation decreased the importance of natural monopolies.

II. Most Monopolies Make a Profit.
    A. ATC includes normal return on investment.
    B. MC cuts ATC at lowest point.
    C. Profit is maximized by producing a quantity and charging a price
         indicated by the intersection of MC and MR.
    D. The resulting profit is not a payment for enterprise, it is economic
         rent which should not exist in pure capitalism.
         1. Economic Rent
         2. Rent Seeking
         3. Economic Rent Video 7:47
    E. High inelastic demand will result in a higher price, greater profit,
         and more restricted (smaller) quantity.
    F. Econ in 60 Seconds Video on Monopoly Graph Review

 

 

 

 

 

 

 

 

 

 

 

 

 

 


III. Some Monopolies Make No Profit.  
     A. Rising costs and shrinking demand may result
          in a monopoly not making a profit.  
     B. When this happens, demand (average revenue)
          is always below the ATC and a loss results.

 

Please  

 

V. Economic Analysis of Monopoly
     A. With pure competition
          1. P = MR = MC
          2. Production is at the lowest point on ATC curve.
     B. With Monopoly  
         1. P > MR = MC
         2. Production is not at the lowest point indicated
             by the ATC curve 
         3. Quantity produced is restricted.
     C. A monopoly is a price maker.
     D. Are monopolies inefficient
          1. There are many inefficiencies.
              a. Lack of competition makes monopolies
                 wasteful as nothing forces efficiency.
             b. Advertising just to enhance barriers to entry.
             c. Litigate to protect monopoly power
             d. Active politically to protect monopoly power
         2. Large scale efficiencies
             a. Bigness creates efficiencies (economies of  
                 scale) causing the ATC curve to be below
                 that of pure competition.

IV. Some Monopolies are Regulated.
      A. If demand is inelastic, profit may be excessive.
      B. Price Discriminating Monopoly Micro in 60 seconds
      C. Government regulates with antitrust laws, government
           ownership, and limiting profit by restricting price to ATC.
       D. M is the where monopoly maximizes profits.
       E. Regulated price R yields a normal return.
       F. E is the economically optimum price.
       G. Econ in 60 Seconds Video:Regulating a Monopoly

           

 

         
            b. Creates the necessary profit and profit potential
                 required for investors to assume the risk associated
                 with large capital investment requirements including
                  ever-increasing R & D expenditures.

E. Additional Materials
       1. When Monopoly Wasn't A Game
       2. 2012 AP Econ Video-We're a Monopoly, Arab Money
       3.Big 2002 recording stars exhibit monopoly power.
          from The Big Picture
          Paul McCartney, $103.3 million
          The Rolling Stones, $87.9 million
          Cher, $73.6 million
          Billy Joel/Elton John, $65.5 million
          Dave Matthews Band, $60.1 million
          Bruce Springsteen & the E Street Band, $42.6 million
          Aerosmith, $41.4 million
          Creed, $39.2 million
          Neil Diamond, $36.5 million
          The Eagles, $35.4 million

 

VI. Dead Weight Loss
.     A. Econ in 60 Seconds Video Monopoly and Dead Weight Loss
 
    B Dead Weight Loss- Key Graphs of Microeconomics in 60 Seconds
      C. From Wikipedia

 

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