Chapter 15 Journal

Chapter 15 reintroduced and talked about a different type of market: monopolies. Instead of competitive firms being price takers, a monopoly firm is a price maker. A monopoly is a firm that is the sole seller of a product without close substitutes. There are three main sources that cause a monopoly: a key resource is owned by a single firm, the government gives a single firm the exclusive right to produce some good or service, and the costs of production make a single producer more efficient than a large number of producers. The book follows these three key points up with examples and case studies. Then, the book went into specific types of monopolies, such as a natural monopoly. A natural monopoly arises because a single firm can supply a good and it would be a smaller cost than two or more firms supplying it. The book goes over terms we have already learned before, such as marginal revenue, total revenue, etc. Afterwards, the book shows the graphs for monopolies and the different types of curves on a monopoly graph. In a monopoly graph, similar to the competitive market, the marginal cost curve and the ATC curve is the same. What differs is the demand curve and marginal revenue curve. The demand curve is a regular market demand curve because in a competitive market, demand takes the product at a fixed price. In a monopolistic market, as the firm (or firms) increase the price, quantity goes down, and vice versa. Also, the marginal revenue will be lower than the demand curve. Those are the only differences in the graphs between a competitive firm and a monopoly. To find profit, it’s the distance between the monopoly price minus the ATC multiplied by the quantity produced. This is because like the competitive firm, profit maximization occurs when marginal cost equals marginal revenue. I would give this chapter a difficulty rating of 1/3.