Chapter 24 Monopoly

Introduction to Part II Product and Factor Markets
previews market models discussed in chapters 23-29.

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     

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Ch 19-22     Ch 23-29
    Ch 30-33

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Lecture Notes

I. Introduction
    A. Part II Product and Factor Markets gives an overview of micro Markets
    B. 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,1990's deregulation lowered the importance of natural monopolies.
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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.









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









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


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.
               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 Source 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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