Monopoly Chapter 15
Monopoly Chapter 15
Monopoly y While a competitive firm is a price taker, a monopoly firm is a price maker o a firm is considered a monopoly if it is the sole seller of its product its product does not have close substitutes
Monopoly • While a competitive firm is a price taker, a monopoly firm is a price maker. • A firm is considered a monopoly if . . . – it is the sole seller of its product. – its product does not have close substitutes
Why Monopoly Arise o The fundamental cause of monopoly is barriers to entry. o Barriers to entry have three sources Ownership of a key resource The government gives a single firm the exclusive right to produce some good Costs of production make a single producer more efficient than a large number of producers
Why Monopoly Arise • The fundamental cause of monopoly is barriers to entry. • Barriers to entry have three sources: – Ownership of a key resource. – The government gives a single firm the exclusive right to produce some good. – Costs of production make a single producer more efficient than a large number of producers
Monopoly resources Although exclusive ownership of a key resource is a potential source of monopoly, in practice monopolies rarely arise for this reason
Monopoly Resources • Although exclusive ownership of a key resource is a potential source of monopoly, in practice monopolies rarely arise for this reason
Government-Created monopolies Governments may restrict entry by giving a single firm the exclusive right to sell a particular good in certain markets o Patent and copyright laws are two important examples of how government creates a monopoly to serve the public interest
Government-Created Monopolies • Governments may restrict entry by giving a single firm the exclusive right to sell a particular good in certain markets. • Patent and copyright laws are two important examples of how government creates a monopoly to serve the public interest