Economics and monopoly introduction Essay

Characteristics Single cheat oner One unwaveringly releases all the take of a particular proposition product No close substitutes mathematical product is unique and if consumers want to buy it they must(prenominal) buy from the monopoliser. Price maker Since the monopolist is the sole supplier of the product, it can modify the legal injury by changing product. The sure faces a downward sloping crave kink, so increasing output lowers the wrong, decrease output increases the set. The firm will fix a price that maximizes its profits.Blocked instauration foundation to the market is totally blocked, significance the firm has no immediate competitors. Barriers to gate may be economies of scale, legal, technological or another type. Nonprice competition Since it has no competitors a monopolist cannot compete on price. Therefore, to deplume new consumers the firm must get in non-price competition such as advertising and public relations campaigns to advertize its pro ducts attributes. Examples of Monopolies? www. welkerswikinomics. com 3 unit of measurement 2. 3. 3 Pure Monopoly Monopoly require as seen by a monopoliser.Three assumptions 1) Entry is totally blocked 2) The monopolist is unregulated by any government so can charge whatever price it wants. 3) The firm is a single price seller. It sells all units of output at the selfsame(prenominal) price. A monopolist faces a downward sloping imply curve. The firm D curve is the market D curve A monopolist can sell additional output only by lowering its price (due to the law of look at). A monopolist must lower the price of all of its output, not just the borderline units, since it is a single-price seller. As a result, as output increases, the firms peripheral revenue falls faster than the price. www. welkerswikinomics. com 4 Unit 2. 3. 3 Pure Monopoly Monopoly make as seen by a Monopolist Demand and Marginal Revenue Q 0 1 P1 2 3 4 5 P2 6 7 8 9 P3 10 P 172 162 152 142 132 122 112 102 92 82 72 TR=PxQ) 0 162 304 426 528 610 672 714 736 738 720 Demand and MR for a Monopolist P MR=? TR/? Q P1 P2 P3 D=AR=P Q1 Q2 Q3 Q MR Based on the above graph, over which swear of output would a monopolist NEVER bring forth?Why? What information is needed to fall the profit maximizing level of output for this monopolist? www. welkerswikinomics. com 5 Unit 2. 3. 3 Pure Monopoly Monopoly Demand as seen by a Monopolist Elasticity and the monopoly Demand curve Identify the elastic thread of the demand curve. Identify the inelastic range of the demand curve. P Demand and MR PED1 P1 PED=1 Question Why wont a monopolist ever produce at a level of output where it is in the inelastic range of its demand curve?