Monopoly
Monopoly Basics Thinking about what would happen with one airline. The opposite of perfect competition
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- In the last video
- we saw that if we had a market
- with perfect competition
- and if the current short-term equillibrium price
- is above the price necessary
- or is above the price at which
- the firms would be generating economic profit
- then more and more firms would start entering
- because if the economic profit is positive
- then that means it is a better place
- to use your resources
- than whatever your opportunity cost is
- You're making profit
- above and beyond your opportunity cost
- so more and more enter it
- so after a little bit
- after one company enters it
- or maybe the same firm
- starts adding more seat-miles
- or adding more planes
- we have another short-term supply curve
- that looks like that
- and then a new equilibrium price
- that's a little bit lower
- and a new equilibrium quantity
- that's a little bit higher
- and that keeps happening
- still your equilibrium price was higher
- than your price necessary
- for a normal profit
- or a zero economic profit
- and so more people enter still
- and so we have another
- short term supply curve
- and we move further to
- the bottom right of this demand curve
- and then it keeps happening
- until we have a supply curve
- where the equilibrium price
- where this new short term equilibrium price
- is the same as the price
- at which everyone is making a normal profit
- or the price needed for zero economic profit.
- at that point
- people are neutral
- whether they drop out
- or enter into the market
- and so the quantity remains stable
- and so that's why
- we view each of these curves over here
- as our short run supply curves
- but this line right over here
- we do in yellow
- this line over here
- we've talked about this in previous videos
- that's why this line over here
- we call the long run supply curve
- because depending on
- whether the equilibrium price
- is above or below this
- at some point the supply
- will enter or exit the system
- so that we eventually get back
- to some point
- along this long run supply curve right over here
- Now this was assuming perfect competition
- many players
- identical products
- identical air travel
- no barriers to entry
- Let's think about what happens
- if we have the exact opposite
- of perfect competition
- so we're gonna start at the same point
- we're gonna start there
- so we're gonna start
- at the green supply curve
- and we have this red demand
- this orange demand curve
- but let's say that instead of
- having perfect competition
- we live in a country where they say
- and there are countries like this
- where they say
- there is only one air carrier
- that can do business
- it is the national air carrier
- in our country
- so instead of many players
- we now have one player
- and then obviously it's an identical product
- well they only sell one product
- one player
- HUGE barriers to entry
- no one else
- you can also say infinite barriers to entry
- no one else by law
- is allowed to enter into this
- I'm going into the extreme case
- and obviously there is the ultimate advantage
- for the existing player
- they are the one that the government
- the only one that the government
- is allowing to participate
- and price information
- we dont really care about
- there's only one price quote
- coming from one player.
- Now when we do that
- when we talk about one player
- as the only player in the market
- we are not talking about
- perfect competition
- we are then talking about a monopoly
- And it is the same word as
- perhaps one of your favorite board games
- and that comes from
- the point of that board game
- is to own all of the properties
- of one of those colors
- so at least in the framework of that board game
- the Monopoly board game
- you know the Parker Brothers board game
- you have a monopoly on the blue
- you know if you own park place and boardwalk
- you have a monopoly
- on that part of the market
- so thats what you'll try to do.
- when you have a monopoly
- you can then charge higher prices
- for when someone lands on your space
- and something very similar
- will happen here
- now we only have one player
- and lets say that right now
- the equilibrium price
- is higher than the price you need
- to have zero economic profit
- so we have one player
- and that player is definitely
- getting some seriou economic profit
- well, they could just sit there
- because no one else can enter
- you're not gonna have this trend
- where more and more supply
- gets on the market
- until you get to this
- long run supply curve
- in fact there will not be
- this long run supply curve
- the long run supply curve is
- whatever frankly the monopolists decide
- they want to do
- if this is where
- their profits are optimized
- theyll do there
- In fact they could even
- go the other direction
- even though they're already
- making some economic profit
- they might determine
- "Hey we could make even more economic profit
- if we lowered the quantity offered even more."
- so they might even
- take supply out of the market
- and so they could have a new supply curve
- that looks like this
- we have a new equilibrium price
- that is even higher
- and is at a lower equilibrium quantity
- they could even do more
- they could raise price even more
- and so you have a new equilibrium price
- that is up here
- and a lower equilibrium quantity
- So clearly when you have a monopoly
- something not so good is happening
- for the consumer
- they are able to raise price
- it's actually not even efficient
- because the optimal quantity
- is not being produced
- but I want to leave you there
- and maybe leave you with
- something to think about
- I said that the monopolist now
- because they dont have to worry about
- other people entering in
- to kind of lower the price
- and get to this normal profit line
- because they dont have to worry about that
- they can set their quantity
- to whatever they want
- or I guess another way you could think about it
- they could set their price to
- whatever they want
- and get the corresponding quantity
- but the question is how do they set that
- how do they determine
- where along this curve
- that they would like to
- either set the price
- or I guess you could say
- set the quantity
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At 5:31, how is the moon large enough to block the sun? Isn't the sun way larger?
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