Journaling of Chapter 15: Monopolies

Chapter 15 is about monopolies. Readers learn about the similarities and differences between monopolies and competitive firms. First of all, monopolists are price makers opposed to price takers. A monopoly is a firm that is the sole seller of a product without close substitutes. A monopoly is the only seller if there are barriers to entry. Sources of barriers to entry include monopoly resources, government regulation, and the production process. A monopoly has a downward sloping demand curve so if it wants to sell a greater quantity the price must lower. Thus, two effects of the sale of an additional unit is the output effect: quantity is higher, and the price effect: price is lower. Monopolies fail to maximize total economic well-being. The socially efficient quantity is found where the demand curve and the marginal-cost curve intersect. The monopolist produces less than the socially efficient quantity of output. The social cost of a monopoly is the dead weight loss generated when the monopolist produces a quantity of output below the efficient point. Price discrimination can only be practiced by firms that have market power such as monopolies. Price discrimination is the business practice of selling the same good at different prices depending on the customer’s willingness to pay. Since monopolies fail to allocate their resources efficiently, policymakers try to make monopolies more competitive, regulating monopolies behaviors, changing monopolies into public enterprises, or doing nothing at all.

I would give this chapter a difficulty rating of 1 out of 3. Monopolies seem to be the opposite of competitive firms because monopolies have control over the prices they charge. However, firms that have substantial monopoly power are rare. Since monopolies and competitive markets are kind of flipped and we have already learned about the latter, the concepts introduced in this chapter were easy to grasp.