Lesson Plan
Market Structure: Monopoly
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I. What is a monopoly market?
- - definition
- - large number of potential buyers but only one seller
- - homogenous product (every firm produces the same product)
- - buyers are small relative to the market but the seller is the market
- - barriers to entry
- - examples of monopolies
- - demand in a monopoly market
- - market demand
- - firm demand
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II. Short-run pricing and output
- - profit maximization for a monopolist
- - monopolists also produce where marginal revenue equals marginal cost
- - what is marginal and average revenue for a monopolist?
- - graphical (for a monopolist)
- - what is total profit?
- - what is total revenue?
- - what is total cost?
- - loss minimization for the monopolist
- - suppose profit < 0? when will the firm shutdown?
- - must cover variable costs or else shut down
- - thus, Q must be set so that P > or = AVC or else shut down
- - what is the firm's short-run supply curve?
- - what is the industry's short-run supply curve?
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III. The long-run in monopoly markets
- - entry into the market is not possible in the long-run for monopolized industries
- - as long as they have barriers to entry
- - artificial barriers to entry
- - legal barriers
- - illegal barriers
- - natural barriers to entry
- - natural monopoly