Chapter 15

Chapter 15 is about monopolies and their role in the market. They are the sole producers of a product, and are given exclusive rights by the government to produce their good through patents and copyright laws. A natural monopoly is a firm that is the sole producer of a product and supplies the market at a lower cost than multiple firms could. Since a competitive firm is a price taker, their demand curve is a horizontal line. However, since monopolies are sole producers of a product, its demand curve is downward-sloping This is because as the monopoly reduces its quantity of output it sells, the price of its output increases. A monopoly's MR<P. For a competitive firm: P=MR=MC. However, for a monopoly: P>MR=MC. The socially efficient quantity is where the demand curve and marginal-cost curve intersect. However, monopolies produce less than the socially efficient quantity and produce a deadweight loss. A monopoly causes deadweight losses similar to the deadweight losses produced by taxes. The deadweight losses of a monopoly are eliminated only in extreme cases of perfect price discrimination. Monopolists try to raise their profits by charging different prices for the same item based on a buyer's willingness to pay. Policymakers respond to the problems of monopolies by: trying to make the monopolized industries more competitive, regulating the behaviors of monopolies, turning some private monopolies into public enterprises, or by doing nothing at all. Overall, I thought this chapter was dense in information. I thought that Table 2 on page 338 was very helpful in summarizing the similarities and differences between monopolies and competitive firms.