• Resource control: Single firm owns key resource (e.g., De Beers diamonds)
• Economies of scale: Natural monopoly (LRAC declines over entire market output)
• Government grants: Patents, copyrights, franchises, licenses
• Strategic actions: Predatory pricing, control of distribution channels
• High startup costs: Significant capital requirements

• Demand curve: Downward sloping (market demand)
• MR curve: Below demand curve, steeper (more than twice as steep)
• MC curve: U-shaped (typical cost curve)
• ATC curve: U-shaped
• Profit maximization: MR = MC, then up to demand curve for price
• Profit area: Rectangle between price and ATC at profit-maximizing quantity

• $MR < P$ (must lower price for all units to sell one more)
• $MR = P(1 - \frac{1}{|E_d|})$
• MR curve lies below demand curve
• MR is zero at unit elastic point of demand
• MR is negative when demand is inelastic

• $P > MC$ (allocatively inefficient)
• Produces less than socially optimal quantity
• Deadweight Loss: Triangle representing lost total surplus
• No guarantee of minimum-cost production (productive inefficiency)
• Monopoly profits are redistribution from consumers to producer

• LRAC continuously declining over entire market output
• Single firm can supply market at lowest cost
• Examples: Utilities, railways, water supply
• Regulation options:
• Marginal cost pricing (P = MC): Allocatively efficient, but firm loses money (needs subsidy)
• Average cost pricing (P = ATC): Firm breaks even, but still has DWL
• Rate of return regulation: Allow fair return on investment

• Market power: Firm must face downward-sloping demand
• Market segmentation: Ability to separate customers into groups with different price elasticities
• No arbitrage: Resale between customer groups must be prevented
• Different price elasticities: Different groups must have different willingness to pay

• First-degree price discrimination
• Charge each customer maximum willingness to pay
• Consumer surplus = 0 (all surplus transferred to producer)
• Deadweight loss = 0 (efficient quantity produced)
• Producer captures all total surplus
• Requires perfect information about each customer's willingness to pay

• Products are similar but not identical
• Differentiation through:
• Physical differences (size, color, features)
• Location differences
• Service differences
• Brand image and advertising
• Quality perceptions

• Can earn positive economic profit, normal profit, or loss
• Profit maximization: MR = MC
• $P > MR$ (due to downward-sloping demand)
• Similar to monopoly in short run (market power from differentiation)

• Free entry and exit drives economic profit to zero
• New firms enter if positive economic profit
• Demand curve shifts left as new firms enter
• Equilibrium: $P = ATC$ (zero economic profit)
• But $P > MC$ and $P > minimum ATC$ (inefficient)

• Firm produces less than output that would minimize ATC
• $P > minimum ATC$ (not productively efficient)
• $P > MC$ (not allocatively efficient)
• "Price" of variety: Consumers willing to pay for differentiated products
• Trade-off: Efficiency vs. product variety

Characteristics:

• Many firms (like perfect competition)
• Differentiated products (like monopoly)
• Free entry and exit

Short run: Can earn positive economic profit (MR = MC, P > MC)

Long run: New firms enter -> demand curve shifts left -> zero economic profit (P = ATC, but P > MC)

Long-run inefficiency:

• Excess capacity: Does not produce at minimum ATC
• P > MC (allocatively inefficient)
• "Price" of variety: Consumer's willingness to pay for differentiated products
• MRC > Wage in Monopsony ( MRC > )
• Monopsony Characteristics
• Monopsony Graphing
• Short-Run Profit/Loss

• Few firms in market
• Each firm's actions affect others
• Strategic behavior: Firms consider rivals' reactions
• Price changes, advertising, product development all strategic
• Example: Airlines, automobile manufacturers, soft drink industry

• Cartel: Group of firms acting together as monopoly
• Explicit collusion to restrict output and raise prices
• OPEC is classic example
• Inherently unstable:
• Each firm has incentive to cheat (produce more, lower price)
• Cheating profits if others maintain agreement
• Detection and enforcement problems
• Legal in some countries, illegal in others (including US)

• Tool for analyzing strategic interactions
• Shows payoffs for each strategy combination
• Rows: Player 1's strategies
• Columns: Player 2's strategies
• Cell contents: Payoffs to each player
• Used to predict equilibrium outcomes

• Strategy that yields highest payoff regardless of what opponent does
• Not all games have dominant strategies
• If both players have dominant strategies, that's the predicted outcome
• Example: Prisoner's Dilemma (confess is dominant strategy)

• Set of strategies where no player can improve by unilaterally changing
• Each player's strategy is best response to others' strategies
• Self-enforcing (no incentive to deviate)
• Multiple Nash equilibria possible
• May not be socially optimal outcome