Ebook Macroeconomics for today (6E): Part 2
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Ebook Macroeconomics for today (6E): Part 2
CHAPTERMonopolylaying the popular board game of Monopoly A teaches some of the characteristics of monopoly theory presented in this chapter. In the ga Ebook Macroeconomics for today (6E): Part 2ame version, players win by gaining as much economic power as possible. They skive to own railroads, utilities, Boardwalk, Park Place, and other valuable real estate. Then each player tries to bankrupt opponents by having hotels that charge high prices. A player who rolls the dice and lands on anoth Ebook Macroeconomics for today (6E): Part 2er player's property has no choice—either pay the price or lose the game.In the last chapter, we studied perfect competition, which may be viewed as tEbook Macroeconomics for today (6E): Part 2
he paragon of economic virtue. Why? Under perfect competition, there are many sellers, each lacking any power to influence price. Perfect competition CHAPTERMonopolylaying the popular board game of Monopoly A teaches some of the characteristics of monopoly theory presented in this chapter. In the ga Ebook Macroeconomics for today (6E): Part 2opoly has the market power to set its price and not worry about competitors. Perhaps your college or university has only one bookstore where you can buy textbooks. If so, students are likely to pay higher prices for textbooks Ilian they would if many sellers competed in the campus textbook market.Th Ebook Macroeconomics for today (6E): Part 2is chapter explains why firms do not or cannot enter a particular market and compete with a monopolist. Then we explore some of the interesting actualEbook Macroeconomics for today (6E): Part 2
monopolies around the world. We study how a monopolist determines what price to charge and how much to produce. The chapter ends with a discussion ofCHAPTERMonopolylaying the popular board game of Monopoly A teaches some of the characteristics of monopoly theory presented in this chapter. In the ga Ebook Macroeconomics for today (6E): Part 2n to solve these economic puzzles:• Why doesn't the monopolist gouge consumers by charging the highest possible price?• How can price discrimination be fair?• Are medallion cabs in New York City monopolists?The Monopoly Market structureThe model at the opposite extreme from perfect competition is mo Ebook Macroeconomics for today (6E): Part 2nopoly. Under monopoly, the consumer has a simple choice—cither buy rhe monopolist's product or do without it. Monopoly is a market structure characteEbook Macroeconomics for today (6E): Part 2
rized by (1) a single seller, (2) a unique product, and impossible entry into the market. Unlike perfect competition, there are no close substitutes fCHAPTERMonopolylaying the popular board game of Monopoly A teaches some of the characteristics of monopoly theory presented in this chapter. In the ga Ebook Macroeconomics for today (6E): Part 2nchmark model. Following arc brief descriptions of each monopoly characteristic.A market structure characterized by (1) a single seller, (2) a unique product. and (3) impossible entry into the market.Single SellerIn perfect competition, many firms make up the industry. In contrast, a monopoly means Ebook Macroeconomics for today (6E): Part 2that a single firm is the industry. One firm provides the total supply of a product in a given market. Local monopolies are more common real-world appEbook Macroeconomics for today (6E): Part 2
roximations of the model than national or world market monopolies. For example, the campus bookstore, local telephone service, cable television companCHAPTERMonopolylaying the popular board game of Monopoly A teaches some of the characteristics of monopoly theory presented in this chapter. In the ga Ebook Macroeconomics for today (6E): Part 2 at a football game are also examples of monopolies. Nationally, the U.S. Postal Service monopolizes first-class mail.Unique ProductA unique product means there are MO dose substitutes for the monopolist’s product. Thus, the monopolist faces little or no competition. In reality, however, there are f Ebook Macroeconomics for today (6E): Part 2ew, if any, products that have no close substitutes. For example, students can buy used textbooks from sources other than the campus bookstore, and teEbook Macroeconomics for today (6E): Part 2
xtbooks can be purchased over the Internet. Natural gas and oil furnaces arc good substitutes for electric heat. Similarly, the fax machine and email CHAPTERMonopolylaying the popular board game of Monopoly A teaches some of the characteristics of monopoly theory presented in this chapter. In the ga Ebook Macroeconomics for today (6E): Part 2rc no constraints to prevent new firms from entering an industry. In the case of monopoly, extremely high barriers make it very difficult227228PART 3 MARKET STRUCTURESNatural monopoly An industry tn which the long-run average cost OÍ production declines throughout the entire market. As a result, a s Ebook Macroeconomics for today (6E): Part 2ingle firm can supply the entire market demand at a lower cost than two or more smaller firms.or impossible for new firms to enter an industry. FollowEbook Macroeconomics for today (6E): Part 2
ing are the three major barriers that prevent new firms from entering a market and competing with a monopolist.Ownership of a Vital ResourceSole contrCHAPTERMonopolylaying the popular board game of Monopoly A teaches some of the characteristics of monopoly theory presented in this chapter. In the ga Ebook Macroeconomics for today (6E): Part 2Alcoa’s monopoly of the U.S. aluminum market from the late nineteenth century until the end of World War II. The source of Alcoa’s monopoly was its control of bauxite ore, which is necessary to produce aluminum. Today, it is very difficult for a new professional sports league to compete with the Nat Ebook Macroeconomics for today (6E): Part 2ional Football League (NFL) and the National Basketball Association (NBA). Why? NFL and NBA teams have contracts with the best players and leases forEbook Macroeconomics for today (6E): Part 2
the best stadiums and arenas.Legal Barriersrhe oldest and most effective barriers protecting a firm from potential competitors are the result of goverCHAPTERMonopolylaying the popular board game of Monopoly A teaches some of the characteristics of monopoly theory presented in this chapter. In the ga Ebook Macroeconomics for today (6E): Part 2er and sewer service, natural gas, and cable television operate under monopoly franchises established by state and local governments. In many states, the state government runs monopoly liquor Stores and lotteries. The U.S. Postal Service has a government franchise to deliver first-class mail.Governm Ebook Macroeconomics for today (6E): Part 2ent-granted licenses restrict entry into some industries and occupations. For example, the Federal Communications Commission (FCC) must license radioEbook Macroeconomics for today (6E): Part 2
and television stations. In most states, physicians, lawyers, dentists, nurses, teachers, real estate agents, hairstylists, taxicabs, liquor stores, fCHAPTERMonopolylaying the popular board game of Monopoly A teaches some of the characteristics of monopoly theory presented in this chapter. In the ga Ebook Macroeconomics for today (6E): Part 2ry. The government grants patents to inventors, thereby legally prohibiting other firms from selling the patented product for 20 years. Copyrights give creators of literature, art, music, and movies exclusive rights to sell or license their works. The purpose behind granting patents and copyrights i Ebook Macroeconomics for today (6E): Part 2s to encourage innovation and new products by guaranteeing exclusive rights to profit from new ideas for a limited period.Economies of ScaleWhy mightEbook Macroeconomics for today (6E): Part 2
competition among firms be unsustainable so that one firm becomes a monopolist? Recall the concept of economies of scale from the chapter on productioCHAPTERMonopolylaying the popular board game of Monopoly A teaches some of the characteristics of monopoly theory presented in this chapter. In the ga Ebook Macroeconomics for today (6E): Part 2ly because of the relationship between average cost and the scale of an operation. As a firm becomes larger, its cost per unit of output is lower compared to a smaller competitor. In the long run, this “survival of the fittest” cost advantage forces smaller firms to leave the industry. Because new f Ebook Macroeconomics for today (6E): Part 2irms cannot hope to produce and sell output equal or close to that of the monopolist, thereby achieving the monopolist’s low costs, they will not enteEbook Macroeconomics for today (6E): Part 2
r the industry. Thus, a monopoly can arise over time and remain dominant in an industry even though the monopolist does not own an essential resource CHAPTERMonopolylaying the popular board game of Monopoly A teaches some of the characteristics of monopoly theory presented in this chapter. In the ga Ebook Macroeconomics for today (6E): Part 2natural monopoly is an industry in which the long-run average cost of production declines throughout the entireCHAPTERMonopolylaying the popular board game of Monopoly A teaches some of the characteristics of monopoly theory presented in this chapter. In the gaGọi ngay
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