output between the output chosen by the monopoly firm and the efficient output The higher price charged by the monopoly firm compared to the perfectly competitive firm reduces consumer surplus, part of which is transferred to the monopolist This transfer generates an equity issue The monopoly firm’s market power reduces consumers’ choices and may result in higher prices, but there may be advantages to monopoly as well, such as economies of scale and technological innovations encouraged by the patent system Public policy toward monopoly consists of antitrust laws and regulation of natural monopolies Forces that limit the power of monopoly firms are the constant effort by other firms to capture some of the monopoly firm’s profits and technological change that erodes monopoly power TRY IT! Does the statement below better describe a firm operating in a perfectly competitive market or a firm that is a monopoly? The demand curve faced by the firm is downward-sloping The demand curve and the marginal revenue curves are the same Entry and exit are relatively difficult The firm is likely to be concerned about antitrust laws Consumer surplus would be increased if the firm produced more output Case in Point: Technological Change, Public Policy, and Competition in Telecommunications Attributed to Libby Rittenberg and Timothy Tregarthen Saylor URL: http://www.saylor.org/books/ Saylor.org 558