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Imperfect Competition

Imperfect Competition

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Published by hishamsauk

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Published by: hishamsauk on Mar 21, 2011
Copyright:Attribution Non-commercial

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12/16/2012

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M
ICROECONOMICS
: I
MPERFECT
C
OMPETITION
 
M
ONOPOLY 
A monopolist is a firm which has (in pure theoreticalterms) 100% market share.
It faces a downward sloping Demand (AR) curve andcan choose to provide at any point along that curve.
The monopolists· profit maximisation problem ismuch like the one facing the producer in a perfectlycompetitive market
y
MR = MC for profit max, as before
The big difference is that
prices are NOT FIXED
anymore
W
e can describe the price as a function of output.
y
= P(Q).Q ² TC (Q, r, w)
y
Differentiate wrt Output and set to 0
 
M
ONOPOLY 
Barriers To Entry
A monopoly is created because firms cannot enterthe industry because barriers to entry (or theymay not enter because they may not be able toleave easily due to barriers to exit).
Barriers to entry are either Artificial or Natural;
y
Natural barriers to entry
largely arise fromIncreasing Returns to Scale ² such that the MES isat such a high level of production only one firm canreally achieve it.
y
rtificial barriers
may arise from legal process(patents and copyrights) or lobbying for regulation forprotectionist measures.

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