1. MONOPOLY The Incorruptibles, Inc.

2. Market Background: Monopoly One powerful firm controlling the market Very difficult to enter market Goods are “unique”, no available substitutes No consumer sovereignty

3. Monopolizing Controlling all resources Not allowing other firms to enter market Providing a unique product Absolute control over market price

4. Modern Day Example Electricity: Controlled by one firm Efficiently distributed to consumers Unaffected by the economic recession A MONOPOLY

6. D and MR really steep

7. a maximum revenuea P1 AR = D Quantity Q1 MR

9. Profit with lower output

10. b (MC=MR) maximum output

11. b both short run and long run equilibrium since no other company can enter the marketPrice/Cost MC P2 b MR AR = D Quantity Q2

12. Normal profit Price/Cost MC AC P MR AR = D Quantity Q

13. Abnormal Profit Price/Cost MC Abnormal profit AC P C MR AR = D Quantity Q2

14. Loss AC Price/Cost MC C Loss P MR AR = D Quantity Q2

15. Advantages of Monopolies. -A monopoly has complete control over their market therefore: Over-produce can be prevented Prices will lower over time as a result of Economy of Scale Abnormal profit is common even in the long run. Production is more efficient and profitable.

16. Why Monopolies are Strong. Cost advantage – Economies of scale Control over supplies Fear of reaction, eg. Price war Control over outlets High entry barrier.

17. Grades => Profit. Grades are a necessity for many students. Parents will pay for grades. Creates competition/higher standard for grades. Prices can regulate demand and standard. Grades are intangible. Grades in CA are already inflated.

18. Examples of successes. Google as a search engine. The spice trade in 1600s. Food and beverages in USJ Cheap products in China Documentation from the Government

19. Why we’re better. Perfect Competition Low amount of funds No influence on price: no market power. Numerous substitutes available. Oligopoly Not as much market power as a monopoly. Not as much control on prices. Price takers. Collusion

20. Why we’re better (cont.) Monopolistic competition Insignificant, small influence on market. Branding/advertising required. Minimal research and development. Neither productive nor allocative efficiency is achieved.