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.