A. Part II Product and Factor Markets gives an overview of micro Markets
B. Our 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.
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.
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
B. When this happens, demand
(average revenue) is always
below the ATC and a loss
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.
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
Analysis of Monopoly