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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 |
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Monopoly arises for two key reasons |
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1. No close substitute 2. Barrier to entry |
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A constraint that protects a firm from potential competitors. |
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a market in which economies of scale enable one firm to supply the entire market at the lowest possible cost. |
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Examples of natural monopoly |
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firms that deliver gas, electricity, and water |
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Ownership Barrier to Entry |
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barrier that arises if one firm owns a significant portion of a key resource. |
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De Beers owning 90% of the world's supply of diamonds |
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An example of an ownership barrier to entry |
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a market in which competition and entry are restricted by the granting of a public franchise, government license, patent, and copyright. |
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an exclusive right granted to a firm to supply a good or service. ex) US postal service |
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controls entry into particular occupations, professions, and industries ex) occurs in medicine, law, dentistry, schoolteaching, architecture... |
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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 |
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an exclusive right granted to the author or composer of a literary, musical, dramatic, or artistic work |
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How long is a patent valid in the US? |
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A monopoly sets its own price |
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What is the difference between a monopoly and competition? |
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Single Price Prive discrimination |
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What are two monopoly situations that create two pricing strategies |
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a firm that must sell each unit of its output for the same price to all its customers ex) De Beer's diamonds |
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when a firm sells different units of a good or service for different prices |
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