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Monopoly
Monopoly
18
Economics
Undergraduate 1
11/24/2012

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Term
Monopoly
Definition
a market with a single firm that produces a good or service for which no close substitute exists and that is protected by a barrier that prevents other firms from selling that good or service
Term
Monopoly arises for two key reasons
Definition
1. No close substitute
2. Barrier to entry
Term
Barrier to entry
Definition
A constraint that protects a firm from potential competitors.
Term
Natural Monopoly
Definition
a market in which economies of scale enable one firm to supply the entire market at the lowest possible cost.
Term
Examples of natural monopoly
Definition
firms that deliver gas, electricity, and water
Term
Natural Monopoly Graph
Definition
[image]
Term
Ownership Barrier to Entry
Definition
barrier that arises if one firm owns a significant portion of a key resource.
Term
De Beers owning 90% of the world's supply of diamonds
Definition
An example of an ownership barrier to entry
Term
Legal Monopoly
Definition
a market in which competition and entry are restricted by the granting of a public franchise, government license, patent, and copyright.
Term
Public Franchise
Definition
an exclusive right granted to a firm to supply a good or service.
ex) US postal service
Term
Government License
Definition
controls entry into particular occupations, professions, and industries
ex) occurs in medicine, law, dentistry, schoolteaching, architecture...
Term
Patent
Definition
an exclusive right granted to the inventor of a product or service
encourages the invention of new products and production methods
stimulates innovation by encouraging inventors to publicize their discoveries and offer them for use under license
Term
Copyright
Definition
an exclusive right granted to the author or composer of a literary, musical, dramatic, or artistic work
Term
20 years
Definition
How long is a patent valid in the US?
Term
A monopoly sets its own price
Definition
What is the difference between a monopoly and competition?
Term
Single Price
Prive discrimination
Definition
What are two monopoly situations that create two pricing strategies
Term
Single-price monopoly
Definition
a firm that must sell each unit of its output for the same price to all its customers
ex) De Beer's diamonds
Term
Price Discrimination
Definition
when a firm sells different units of a good or service for different prices
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