Chapter 16

The defining characteristic of a natural monopoly is

economies of scale over the relevant range of output

a monopoly market

generally fails to maximize total economic well being

What do economists call the business practice of selling the same good at difference prices to different customers?

price discrimination

A monopolist maximizes profits by

producing an output level where marginal revenue equals marginal cost

A firm that is a natural monopoly

1. is not likely to be concerned about new entrants eroding its monopoly power. 2. is taking advantage of economies of scale 3. would experience a higher average total cost if more firms entered the market

a monopoly firm

A monopoly firm is a price maker and has no supply curve

a monopoly

can set the price it charges for its output but faces a downward-sloping demand curve so it cannot earn unlimited profits.

perfect price discrimination

increases profits to the firm, increases total surplus, decreases consumer surplus

A monopolist produces

less than the socially efficient quantity of output but at a higher price than in a competitive market

reasons for the existence of a monopoly?

patents, copyrights, sole ownership of a key resource

If a pharmaceutical company discovers a new drug and successfully patents it, patent law gives the firm

sole ownership of the right to sell the drug for a limited number of years.