PURE MONOPOLY

Slide 1: A pure monopoly is a market that has only one seller: a single firm. It is worth
noting at the outset that pure monopolies are very rare.

Slide 2:
TWO MAIN ISSUES TO ADDRESS IN ANALYZING MONOPOLY
 One must understand monopoly behavior—how a profit-maximizing monopolist
determines price and output.
 One must appreciate that a precondition for monopoly is the presence of barriers
to entry

Di ko kabalo unsaon ni explain ay

The lesson here is that pure monopoly enables the firm to earn excess profit, but the
actual size of this profit depends on a comparison of demand and cost.
A common measure of monopoly power is given by the Lerner index, defined as L _(PM
_ MC)/PM, where PM denotes the monopolist’s price and MC is marginal cost. For a
profit-maximizing monopolist, how does the Lerner index depend on the elasticity of
industry demand? (Hint: Recall the price-markup rule of Chapter 3.) What do you see as
the advantages and disadvantages of using the Lerner index as a measure of monopoly
power?

AR IKAW JUD EXPLAIN ANI. NAA RAMAN SA BOOK