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Principles of Microeconomics


This topic focuses on the opposite extreme from perfect competition, which is monopoly. In a perfectly competitive market, there are so many firms that no one firm can influence the market price. By contrast, there is only one seller in a monopolistic market; therefore, that firm, together with the market demand curve, determines the market price. The Pencasts on this topic include a comparison of the a monopoly firm to a competitive firm, determining the deadweight loss caused by a monopoly, identifying a monopoly’s profit, how the elasticity of demand determines how much market power a monopoly has, how price discrimination improves market outcomes for everyone (consumers and the monopoly), and how to apply optimal price regulation to a natural monopoly.

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Monopoly versus Competitive

This Pencast illustrates the differences in the output decisions by a representative competitive and a monopoly firm. It highlights the difference between the two types of firms, with emphasis on the fact that monopoly firm’s are able to influence the price at which their product sells while competitive firms do not have such power. [Play Pencast]

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Monopoly and Deadweight Loss

This Pencast shows the inefficiency that results from monopoly power. It shows that a monopolies produce less than competitive firms, and this is the reason for the deadweight loss caused by a monopolist. Utlimately, a monopoly creates a deadweight loss because they prevent trades from taking place that would under perfect competition. [Play Pencast]

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Monopoly Profit

This Pencast derives the profit function for a monopoly firm and illustrates how to identify the profit earned by a hypothetical monopoly in a graph. [Play Pencast]

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Elasticity and Monopoly Pricing

This Pencast illustrates that the elasticity of demand is the sole determinant of a monopoly’s market power. When demand is relatively more inelastic, the monopoly will have greater ability to charge a price over marginal cost than when demand is relatively elastic. [Play Pencast]

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Monopoly and Price Descrimination

This Pencast defines the concept of price discrimination and illustrates how it reduces the inefficiency caused by a single-price monopoly. Effectively, a monopoly's ability to price discriminate benefits both the monopoly and consumers. [Play Pencast]

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Natural Monopoly

This Pencast describes the unique shape of a natural monopoly’s cost curves, and illustrates the difficulty of regulating them such that the competitive outcome is simulated. The difficulty of regulating the natural monopoly’s stems from the shape of its cost curves. [Play Pencast]

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