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Chapter 8- Monopoly - Coggle Diagram
Chapter 8- Monopoly
Perfection competition
Many firms
Identical Goods
Free entry and exits
Imperfect competition
Is the deviation from perfect competition
Having a
few
firms rather than many
Having
differentiated
goods rather than identical
Each firm has some market power
Oligopoly
Only a
few
sellers, each offering
identical
goods
Monopolistic competition
Many
firms sell products that are
similar
Extreme case also known as monopoly
Monopoly
Only
one
firm in a market offering particular good
Sole seller of its products
Its products do not have
close
substitutes
is price
MAKER
rather than taker
Faces downward sloping demand curve
Why they arise?
Fundamental
cause
of Monopoly is the Barries to entry
Ownership of
key resource
, resource based monopoy
The sole owner of key resource
Government allows exclusive rights,
Government Monopoly
sometimes are government generated, they restrict entry and have patent laws etc..
Cost of production is lower and
efficient
than others,
Natural Monopoly
Is when a
single
firm can supply goods to a market at
lower
cost than others.
Has economies of scale
Monopoly's Revenue
TR= P*Q
AR= TR/Q
MR= Delta TR/ Delta Q
When sales
increase
, it has to
reduce
price. Which has 2 effects
Output effect: more output is sold at market price
Price effect:
price is reduced to sell more, so P is lower for all units sold in market, revenue decreases by DeltaP * Q
The MR is always < Price because of downward sloping demand curve
The MR slope is 2x the Demand curve slope
Profit Maximization Decision