Chp 15

Chapter 15 coveres the behavior of different types of monopoly firms. A firm is a monopoly if it is the sole seller of its product and if its product does not have close substitutes. Monopoolies are said to be price-makers because there are no close competitors. The price set are often times higher than if it were a perfectly competitive firm however monopolies cannot achieve the level of profit they want because high prices reduce the amount that costumers buy. The fundamental cause of monopoly is barriers of monopoly. Barriers in entry have three main sources, a key resource is owned by a single firm, the govermenet gives a single firm the exclusive right to produce some good/service, and the cost of production make a single producer more effiecient than a large number of producers. The simplest way for a monopoly to arise is for a single firm to be own a key resource, in practice however, there are few firms that own a resource for which there are no close substitutes. In many cases monopolies arise because the goverment has given one person or firm exclusive right to sell some good or service. Patent and copyright laws are two important examples of how the goverment creates a monopoly to serve the public interest. Patents and copyright laws have benefits and costs. One benefit of patent and copyright laws are increased incentive for creative activity. An industry is a natural monopoly when a single firm can supply a good or service to an entire market at a smaller cost than could two or more firms. A natural monopoly often arises when there are economies of scale over the relevant range of output.