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assumptions of a monopoly
one firm, unique product, entry blocked
different barriers that lead to monopoly
- gov't blocks entry
- control of a key resource
- network externalities
- economies of scale (sometimes leads to natural monopoly)
how does a monopoly decide on the profit maximizing price and output level?
produce at the quantity that makes MR equal MC
how does a monopoly decrease economic efficiency with respect to a perfectly competitive market?
- By increasing the price and reducing the quantity produced, the monopolist reduces
- economic surplus and creates a deadweight loss, which represents the loss of economic efficiency due
- to monopoly.
analyze govt policy towards monopolies
- antitrust laws prevent firms from creating monopolies
- regulate the natural monopolies and the price they charge