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Chapter 8: Monopoly - Coggle Diagram

- - - - Only a few sellers, each offering almost identical product
    - - Many firms sell products that are similar but not identical
    - - Extreme Case of imperfect competition, when there is only one firm in the market offering a particular product
        
        A firm is considered monopoly if
        
        The sole seller of its product
        
        Its product doesn't have a close substation
        
        Fundamental cause of a monopoly are barriers to entry.
        
        Ownership of a key resource
        
        Owner known as a de facto, becomes the monopolist.
        
        rarely happens
        
        The government gives the right of the product to a single firm
        
        Patent and copyright laws are two government created monopoly
        
        Most are generated like this.
        
        Costs of production make a single producer more efficient (natural monopoly)
        
        When a single firm can supply a good to an entire market at a smaller cost than two or more firms.
        
        A natural monopoly arises when there are economies of scale over the relevant range of market demand
        
        Monopoly firm is a price taker
      - Monopoly Revenue
        
        Average Revenue = TR/q = P
        
        Marginal Revenue = delta TR/ delta q
        
        Monopoly's Revenue
        TR = P (Q) x Q
        
        If a monopolist wants to increase sales, it has to reduce price. Which will have to outcomes
        
        Output Effect: More is sold, so revenue increase by P x delta Q
        
        Thus, monopolist TR is:
        
        delta TR = (p x deltaQ) + (delta p x Q)
        
        MR = P + (delta P / delta Q) x Q
        
        MR is always lower than price because the curve is downward sloping
        
        Price effect: Price is reduced, so revenue decreases by delta P x Q
        
        Profit Maximization decisions:
        
        When MC(Q) = MR(Q)
        
        For a competitive market, price equals marginal cost
        
        MC = MR = P
        
        Monopoly firm, price exceeds marginal cost
        
        MC = MR < P
        
        Monopoly price is higher than competitive
        
        The high price tho, distorts the market, and excludes some consumers from participating, causing inefficiency.
        
        1 more item...
        
        Monopolists produce less than the socially efficient quantity of output.
        
        1 more item...
        
        Q = D(P)
        
        Monopoly Profit is:
        
        P = TR - TC
        or
        
        P = (TR/q - TC/q) x q
        or
        
        P = (P - ATC) x q
- - - - Increases the monopolists profits
        
        Usually decreases consumer surplus
        
        Usually increases the quantity produced and sold by monopolists. Reduces market distortions.
        
        Usually reduces deadweight loss and improves efficiency