chapter 8 - managing
Monopoly and Monopoly Power - what is the implication of this?
A market structure in which a single firm serves an entire market for a good that has no close substitutes. Sole seller of a good in a market gives that firm greater market power than if it competed against other firms. market demand curve is the monopolist's demand curve.
Entry Barriers implications monopoly power, however,
A monopolist may earn positive economic profits, which in the presence of barriers to entry prevents other firms from entering the market to reap a portion of those profits Monopoly power, however, does not guarantee positive profits.
Two strategies monopolistically competitive firms use to persuade consumers:
Comparative advertising Niche marketing
The differentiated nature of products in monopolistically competitive markets implies that firms in these industries must
continually convince consumers that their products are better than their competitors.
In the long run, perfectly competitive firms produce a level of output such that
𝑃=𝑀𝐶 𝑃=𝑚𝑖𝑛𝑖𝑚𝑢𝑚 𝑜𝑓 𝐴𝐶
To maximize short-run profits, a perfectly competitive firm should produce in the range of increasing marginal cost where provided that ___
𝑃=𝑀𝐶, provided that 𝑃≥𝐴𝑉𝐶.
In the long run, monopolistically competitive firms produce a level of output such that:
𝑃>𝑀𝐶 𝑃=𝐴𝑇𝐶>𝑚𝑖𝑛𝑖𝑚𝑢𝑚 𝑜𝑓 𝑎𝑣𝑒𝑟𝑎𝑔𝑒 𝑐𝑜𝑠𝑡𝑠
A profit-maximizing monopolist should produce the output
𝑄^𝑀, such that marginal revenue equals marginal cost: 𝑀𝑅(𝑄^𝑀 )=𝑀𝐶(𝑄^𝑀 )
If 𝑃<𝐴𝑉𝐶, - what should the firm do?
, the firm should shut down its plant to minimize it losses.
Sources of Monopoly Power - four main ones
Economies of scale Economies of scope Cost complementarity Patents and other legal barriers
Long-Run Equilibrium If firms in monopolistically competitive markets earn short-run profits, additional firms will ______ what happens with losses?
If firms in monopolistically competitive markets earn short-run profits, additional firms will enter in the long run to capture some of those profits. losses, some firms will exit the industry in the long run.
Deadweight Loss of Monopoly
The consumer and producer surplus that is lost due to the monopolist charging a price in excess of marginal cost
Perfectly competitive markets are characterized by: the implications of these conditions are
The interaction between many buyers and sellers that are "small" relative to the market. Each firm in the market produces a homogeneous (identical) product. Buyers and sellers have perfect information. No transaction costs. Free entry into and exit from the market. a single market price is determined by the interaction of demand and supply firms earn zero economic profits in the long run.
An industry is monopolistically competitive if:
There are many buyers and sellers. Each firm in the industry produces a differentiated product. There is free entry into and exit from the industry
To maximize profits, a monopolistically competitive firm produces profit-maximizing price ius whast
To maximize profits, a monopolistically competitive firm produces where its marginal revenue equals marginal cost. The profit-maximizing price is the maximum price per unit that consumers are willing to pay for the profit-maximizing level of output.
To maximize short-run profits, managers must take as given the fixed inputs (and fixed costs
and determine how much output to produce by changing the variable inputs
The short run is a period of time over which some factors of production
fixed
The profit-maximizing output, 𝑄^∗ is what??
is such that 𝑀𝑅(𝑄^∗ )=𝑀𝐶(𝑄^∗ ) and the profit-maximizing price is 𝑃^∗=𝑃(𝑄^∗ ).
The short-run supply curve for a perfectly competitive firm is its
marginal cost curve above the minimum point on the 𝐴𝑉𝐶 curve.
Implication of this
products are close, but not perfect, substitutes; therefore, firm's demand curve is downward sloping under monopolistic competition.
A key difference between monopolistically competitive and perfectly competitive markets is
that each firm produces a slightly differentiated product