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KEY IDEA:
A monopoly is a market with just one firm that can earn
continual profit if competitors have difficulty entering the
market.
OBJECTIVES:
•To explain the concept of market structure.
•To describe the characteristics of a monopoly.
•To explain the effects of price discrimination.
MARKET STRUCTURE
Market structure
describes the nature
of competition
within a market.
MARKET STRUCTURE
Imperfect competition
arises when there is not
enough competition
among firms to prevent
individual firms from
raising their price above
the equilibrium level
determined by supply
and demand.
WHAT IS A MONOPOLY?
Monopoly is a product
market served by only one
firm.
A natural monopoly is a
market in which high
startup costs make it
prohibitively expensive for
more than one firm to
operate.
WHAT IS A MONOPOLY?
The average cost is the total cost of production divided by
the quantity of output.
Economies of scale exist if, in the long run, an increase in
output results in a decrease in average cost.
WHAT IS A MONOPOLY?
The Four Main Sources of Market Power:
• High Start- Up Costs
• Exclusive Access to a Critical Input
• Government Protection
• Unfair Practices
WHAT IS A MONOPOLY?
Threats to a Monopolist:
The major threat is introduction of
competition.
Others include:
•Technological change
•The entry of international firms
•The end of government protection
WHAT DO
MONOPOLISTS DO?
Monopolists as Price Makers
Maximizing Profit (MR=MC)
MONOPOLY:
USING THE GRAPH
Find the output where MR = MC on the graph
for the profit maximizing output.
THE INEFFICIENCY OF
MONOPOLY
A consumer’s reservation price for a product is the
highest price he or she is willing to pay to own one
more unit of the product.
PRICE DISCRIMINATION
What is…
A. Imperfect competition?
B. Market structure?
C. Product market?
D. Monopoly?
E. Monopolist?
F. Market power?
G. Barriers to entry?
H. Natural monopoly?
I. Average cost?
J. Economies of scale?
K. Reservation price?
L. Price discrimination?
MODULE 24:
OLIGOPOLY AND MONOPOLISTIC
COMPETITION
KEY IDEA:
When there are many firms in a market, they can gain market power if they
can differentiate their products. When there are only a few firms in a market,
they might be able to work together to reduce output below the perfectly
competitive level, charge a relatively high price, and raise their profits.
OBJECTIVES:
•To describe what characterizes oligopolies and how they operate.
•To explain why it is difficult for a small number of firms to enforce an
agreement that restricts output.
•To analyze how firms in markets characterized by monopolistic competition
behave with regard to pricing, advertising, product development, and quality
of service.
OLIGOPOLY: A SMALL
NUMBER OF FIRMS
An oligopoly is a market with a small number of firms.
An oligopolist is a firm in an oligopoly industry.
OLIGOPOLY: A SMALL
NUMBER OF FIRMS
Collusion among oligopolists exists as they work together.
A cartel is a group of firms that agree to work together and act
like a monopoly.
MONOPOLISTIC
COMPETITION
Pros Cons
• offering a wider range of • higher price than perfectly
products competition markets
• competition for the service • Inefficiently low quantity of
offered output
• profits in the short run for • profits fall as advertising
firm budgets rise
MODULE 24 REVIEW
What is…
A. Oligopoly?
B. Oligopolist?
C. Cartel?
D. Monopolistic competition?
E. Highly concentrated?
F. Collusion?
G. Differentiated products?
H. Quotas?
I. Chiseling?
MODULE 25:
REGULATING MARKET POWER
KEY IDEA:
Antitrust regulations are designed to limit the inefficiencies
brought about by imperfectly competitive markets.
OBJECTIVES:
•To analyze the effects of market structure on efficiency.
•To discuss the pros and cons of price controls.
•To explain the purpose of antitrust policy and how it is
enforced.
MARKET STRUCTURE
AND EFFICIENCY
Perfect Competition
Perfect Competition results in the efficient level of production.
Monopoly
Price will be higher and the quantity of output lower with
increased market power.
What is…
A. Price controls?
B. Trust?
C. Tying?
D. Antitrust policy?
E. Interlocking directorates?
F. Predatory acts?