Editors Notes:
A.
Part II Product and Factor Markets should be read as an introduction to this
chapter,
especially by those using
McConnell Economics Books or
involved with
Test Prep, CLEP, or
AP Economics
projects as it contains a concise overview of chapters 23-29.
B.
Our
Current Events Internet Library
has an interesting economics
section.
I. Introduction
A. 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
competing firms.
B. 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.
Deregulation in the 1980's and 1990's 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.
E. High inelastic demand will result in a higher price, greater profit,
and a
more restricted (smaller) quantity.
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AP Microeconomics Review Materials! |
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.
VI. Are monopolies inefficient
A. There are many inefficiencies.
1. Lack of competition makes monopolies wasteful as there is nothing to force
efficiency.
2. Advertising just to enhance barriers to entry.
3. Litigate to protect monopoly power
4. Active politically to protect monopoly power
B. Large scale efficiencies
1. Bigness creates efficiencies (economies of scale) causing the
ATC curve to be below that of pure competition.
2. 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.
VII.
Don't
Know Much About History Book Summary, Chapter 5 When Monopoly Wasn't A Game.
VIII. Other Information from The Big Picture
A.
Big recording stars exhibit monopoly power.
B. Here's a rundown of 2002's
according to Pollstar:
1. Paul McCartney, $103.3 million
2. The Rolling Stones, $87.9 million
3. Cher, $73.6 million
4. Billy Joel/Elton John, $65.5 million
5. Dave Matthews Band, $60.1 million
6. Bruce Springsteen & the E Street Band, $42.6 million
7. Aerosmith, $41.4 million
8. Creed, $39.2 million
9. Neil Diamond, $36.5 million
10. The Eagles, $35.4 million
Our
Economics Learning Center
has information for students, teachers, an
professionals.
Check out
AP Microeconomics Review Materials!
