Chapter 24 Monopoly
II. Most Monopolies Make a Profit .
III. Some Monopoly Do Not Make a Profit.
IV. Some Monopolies are Regulated
V. Economic Analysis of Monopoly
VI. Dead Weight Loss Please
A. Part II Product and Factor Markets gives an overview of micro Markets
B. Political Economy Controversies has an interesting economics section.
C. A monopoly exists when one firm has continued control over a unique market.
1. By controlling supply and therefore price, a monopoly may earn high
2. Continued existence presupposes barriers which restrict market entry and
the resulting competition.
D. Barriers to entry
1. Economies of scale require
a. Large initial capital investment
b. Large R & D expenditures
2. Ownership of raw material, strategically located land, etc.
3. Patents and copyrights
4. Unfair competition
5. Natural barriers to entry lead to natural monopolies.
a. Economies of scale can be so large that more than one producer is illogical.
b. Natural monopolies reduce duplication, waste, and confusion.
c. Natural monopolies are often privately owned and publicly regulated.
d. Example: public utilities
e. 1980's and 1990's deregulation decreased the importance of natural monopolies.
Most Monopolies Make a Profit.
III. Some Monopolies Make No Profit.
A. Rising costs and shrinking demand may result
in a monopoly not making a profit.
B. When this happens, demand (average revenue)
is always below the ATC and a loss results.
Analysis of Monopoly
Monopolies are Regulated.
A. If demand is inelastic, profit may be excessive.
B. Price Discriminating Monopoly Micro in 60 seconds
C. Government regulates with antitrust laws, government
ownership, and limiting profit by restricting price to ATC.
D. M is the where monopoly maximizes profits.
E. Regulated price R yields a normal return.
F. E is the economically optimum price.
G. Econ in 60 Seconds Video:Regulating a Monopoly
E. Additional Materials