Econ Exam 2 Chapter 9

• An industry in which single firms have some control over the price of their output
• Still competition, firms can differentiate, advertise

An imperfectly competitive's firms power to rise demand without loosing demand

• An industry where only one firm produces a produce
• -There are no close substitutes
• -Significant barriers to entry exist to prevent other firms from entering the industry to compete for profits

• Without close substitutes, monopolist can change their prices without fear of loosing demand because costumers can't switch to another product
• Fewer substitutes = less elastic = more power
• The more broader a product is the more complicated it becomes to find a substitute
• -ex. substitute for food vs. substitute for burger

• Something that prevents new firms from entering and competing
• Monopolist can prevent other firms from entering
• -If other firms enter it is no longer a monopoly
• B/c of this monopolist can earn positive profit year after year

• Government Franchising or Licensing
• -ABC stores, USPS
• Patents: Grands exclusive use of patented product to its inventor for a limited period of time
• -Brand name drugs
• Economies of scale or other cost advantage
• -High start up prices, natural barrier, gas company
• Ownership of scarce factor of production
• -Debeer's in Diamonds

• How much to produce
• How to produce it
• How much to demand in each input market
• *What price to charge for their outpu
• -"price searchers"

• MR=MC
• Firms should produce until the cost of the last unit made is equal to the increase in revenue from the last unit made

• Choosing a higher quantity involves not just producing more but also reducing its price
• Will never choose negative revenue 
• Will always be on elastic portion of demand curve

• Not all monopolies are guaranteed to make profit
• One ca incur short run losses and can be force to shut down in the short run
• -Monopolist should produce if P>AVC but should shut down if P<AVC
• Ex. if you opened a BBQ hamster shop

Figuring out what the demand curve looks like is very difficult or where the MC curve will be to you can't just say to find the Q where MC=MR

• There is none
• The amount is supplies depends on both its marginal cost curve and the demand curve it faces

• Monopolist choose a lower quantity and charge a higher price also operate at a point with higher average total costs
• By rising price and cutting quantity monopolist steal surplus from consumers
• Some surplus goes to firms as "producer surplus" and some is lost competely "deadweight loss"

• Could be lower if monopoly achieves some cost saving economies of scale 
• Could be greater if resources were used to achieve this monopoly power
• -Rent seeking, political lobbying

• 1. Resulting in quantity less than optimal PC quantity (and price higher than PC price) - this causes "dead weight loss"
• 2. They don't have much incentive to cut cost. Do not operate at the minimum ATC
• 3. Often spend resources to keep their power (rent seeking) and may do other bad things to keep power

• PC firms have big incentive to cost cut because if one firm does the other has to to continue to make a profit
• Monopolies earn more profit by cutting costs, but the benefits are not as large as it would be for a PC firm

• An industry that realizes such large economies of sclae in producing its product that single firm production of the good or service is most efficient
• Gas electric
• Government over see's them, forcing lower prices

• -A firm charges maximum amount to buyers willing to buy
• Consumer surplus goes to monopolist
• Almost impossible to do

• Firms charge people different prices base don observable consumer attributes
• ex. cheaper movie tickers for students or seniors, charges less in order to maximize profits

• firms charge different prices based on unobservable consumer attributes
•  -Sam's club or quantity discounts