![]() ![]() ![]() In a monopoly, a firm will typically make greater than zero economic profit (remember that term?). A higher price than the equilibrium price in a competitive market.A lower quantity of goods produced and consumed than in a competitive market.A market in which there is a monopoly will generate less wealth for a society than a competitive market would. They are undesirable, or "bad," because in this case "bad” means less than the most possible total wealth – the sum of the producer and consumer surpluses. Monopolies are typically assumed to be undesirable market structures. Firms in a case such as this may have a lot of market power, and may face a lot of scrutiny from the government, but they are not technically monopolies. ![]() If a firm obtains an inordinate market share due to offering a product that many people want to buy, we do not have a monopoly. These are not monopolies, in that firms in these markets do have competitors, and consumers do have choices. We will talk more about natural monopolies a bit later in the course.Īt this point, you might think about some markets that have a dominant market share held by a single firm, such as Microsoft in the market for spreadsheet software. A Natural Monopoly exists (e.g., your local power company).The government allows a monopoly to exist (not common in the US, but in many countries things like airlines or railways are government-designated monopolies).All of some resource is owned by some firm (e.g., deBeers and diamonds).There are three ways that a monopoly can exist and/or persist: He cannot have a high price and a high quantity of sales – if he has a high price, people will buy less. A monopolist is free to set prices or production quantities, but not both because he faces a downward-sloping demand curve. A monopoly is a market with only one seller. This is the most extreme, but not the most common, example of market power. If you are able to move the equilibrium price with your own choices, then you can be referred to as a "price-setter." In reality, in many situations, somebody in the market has some power to change prices through their individual actions. Hence, you have to "take" whatever the price is. In this case, the equilibrium price in a market is defined by so many different transactions that anybody who wishes to buy or sell in this market has to do so at the market equilibrium price, and they are not able to move the equilibrium price with their own actions. Our first assumption is that of market power, which states that everybody is a price taker, or that there are many buyers and sellers in a market. For this section, please read Chapter 11: "Price Searcher Markets with High Entry Barriers." from Gwartney et al.įrom Greenlaw et al. ![]()
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