Foundations of Economics, 8th Edition

Chapter Summary

Key Points

1. Explain how monopoly arises and distinguish between single-price monopoly and price-discriminating monopoly.

   • In monopoly, a single producer of a good or service that has no close ­substitutes operates behind a natural, legal, or ownership barrier to entry.

   • A monopoly can price discriminate when there is no resale possibility.

   • Where resale is possible, a firm charges a single price.

2. Explain how a single-price monopoly determines its output and price.

   • The demand for a monopoly’s output is the market demand, and a single-price monopoly’s marginal revenue is less than price.

   • A monopoly maximizes profit by producing the quantity at which marginal revenue equals marginal cost and by charging the maximum price that consumers ...