Monopoly (Chapter 15)Presentation byIsmail Ali and

Jessica Zhang

A Bad ExampleYou know those handouts other groups printed and gave out? We did that too. On the handouts are URLs that we think will help you study for the Econ final. Thing is, we've got money in mind. A handout costs $1. Be quick, though. We've only printed ten copies.

Gotcha!Just kidding. We actually gave a few of you money to buy those handouts. The democratization of information that may have just followed is what happens over a much longer timespan in real monopolies. If you've succumbed to groupthink and bought one without us asking beforehand, let us know and we'll return it. We'll show you the URLs later.

Summary•What is a monopoly?•What enables a monopoly?•Monopoly vs. Perfect Competition (and price discrimination)•Monopolies and welfare•Monopoly and public policy•URLs

So, what is a Monopoly?"A firm is a monopoly if it is the sole seller of its product and if its product does not have close substitutes."Translation: The only seller of a product that hasn't been duplicated

Examples: The DMV, Northend, etc.

Barriers, Barriers, BarriersMonopolies exist because of one

thing: Barriers.

Barriers come in three flavors1. Key resource for just one firm2. The guv'ment3. Costs of production=efficiency (economies of scale)

Monopoly vs. Perfect Competition, Part I

Monopoly•Just one firm•Marginal Revenue > Price (Goodbye, Mr. Darp)•Price > MC•Not welfare-maximizing•No entry•Long-run profits possible•Price discrimination doable•Price maker

Monopoly vs. Perfect Competition, Part II

Perfect Competition•Many firms•Marginal Revenue = Price•Price = MC•Welfare-maximizing•Easy entry•Long-run profits impossible•Price discrimination not doable•Price taker

Monopoly vs. Perfect Competition, Part III

Both•Goal: Maximize profit$ (Awwww, yeaaaah)

•Profit Maximization where Marginal Revenue = Marginal Cost

•Short-run profits possible

Monopoly vs. Perfect Competition, Part IV

Price Discrimination•Not possible for perfect competition

•(Market power is a must)•Solves deadweight loss

•Eliminates inefficiencyExamples: movie tickets, financial aid, quantity discounts

What does a Monopoly do for Welfare?

In short,•Benefit Monopolists (high producer surplus)•Does not maximize total economic well being like competitive markets

Government and Monopoly("Democratizing Monopolies")

Governments can:•Make the market more competitive•Regulate monopoly behavior•Take control (public ownership)•Do zilch

The EndThe URLs are studyforecon.wordpress.com and slideshare.net/ismailzali.

They're on Facebook as well.

Questions?