In this chapter, students will be able to understand: List the characteristics of pure monopoly, explain how a pure monopoly sets its profit-maximizing output and price, discuss the economic effects of monopoly, describe why a monopolist might prefer to charge different prices in different markets, distinguish between the monopoly price, the socially optimal price, and the fair-return price of a government-regulated monopoly. | Pure Monopoly 10 Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Four Market Models LO1 Characteristics of the Four Basic Market Models Characteristic Pure Competition Monopolistic Competition Oligopoly Monopoly Number of firms A very large number Many Few One Type of product Standardized Differentiated Standardized or differentiated Unique; no close subs. Control over price None Some, but within rather narrow limits Limited by mutual inter-dependence; considerable with collusion Considerable Conditions of entry Very easy, no obstacles Relatively easy Significant obstacles Blocked Nonprice competition None Considerable emphasis on advertising, brand names, trademarks Typically a great deal, particularly with product differentiation Mostly public relation advertising Examples Agriculture Retail trade, dresses, shoes Steel, auto, farm implements Local utilities 10- An Introduction to Pure Monopoly Single seller – a sole producer No close substitutes – unique product Price maker – control over price Blocked entry – strong barriers to entry block potential competition Non-price competition – mostly PR or advertising the product LO1 Public utility companies Natural Gas Electric Water Near monopolies Intel Wham-O Professional sports teams 10- Barriers to Entry Barrier to entry: a factor that keeps firms from entering an industry Economies of scale Legal barriers: patents and licenses Ownership of essential resources Pricing LO1 10- Monopoly Demand The pure monopolist is the industry Demand curve is the market demand curve Downsloping demand curve Marginal revenue is less than price LO1 10- Monopoly Demand Marginal revenue 10- Output and Price Determination LO2 Steps for Graphically Determining the Profit-Maximizing Output, Profit-Maximizing Price, and Economic Profits (if Any) in Pure . | Pure Monopoly 10 Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Four Market Models LO1 Characteristics of the Four Basic Market Models Characteristic Pure Competition Monopolistic Competition Oligopoly Monopoly Number of firms A very large number Many Few One Type of product Standardized Differentiated Standardized or differentiated Unique; no close subs. Control over price None Some, but within rather narrow limits Limited by mutual inter-dependence; considerable with collusion Considerable Conditions of entry Very easy, no obstacles Relatively easy Significant obstacles Blocked Nonprice competition None Considerable emphasis on advertising, brand names, trademarks Typically a great deal, particularly with product differentiation Mostly public relation advertising Examples Agriculture Retail trade, dresses, shoes Steel, auto, farm implements Local utilities 10- An Introduction to Pure Monopoly Single seller – a sole producer No
