Chapter 24 Monopoly

I. Introduction
II. Most Monopolies Make a Profit
III. Some Monopoly Do Not Make a Profit.
IV. Some Monopolies are Regulated. 
V Dead Weight Loss
VI. Economic Analysis of Monopoly
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 of 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

     Check out AP Microeconomics Review Materials!

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.

C. AP Microeconomics Review

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

V 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


VI. 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 there is nothing to force 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. 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

Last Chapter  Next Chapter 

Free Stuff For Students

Free Internet Libraries improve grades and careers.  

Chapter 24 Class Discussion Questions Table of Contents
Chapter 24 Homework Questions Economics Internet Library