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Ch 7: Firm Behavior & Monopoly in Microeconomics

About This Chapter

Explore these lessons to understand the microeconomics topic of a monopoly and how it can affect firm behavior. Read through the lesson materials to identify other key concepts, such as a perfect market, monopolistic competition, and oligopolies.

Firm Behavior & Monopoly in Microeconomics - Chapter Summary and Learning Objectives

Lawmakers both support and oppose monopolies, which may seem confusing as you learn about microeconomics. These lessons will help clarify the issue and explain instances when monopolies are beneficial as well as when monopolies can be harmful to both producers and consumers. Each lesson explores a single topic related to monopolies in microeconomics, and these lessons often include related formulas and real-world examples. Additional topics discussed are as follows:

  • Formulas to calculate different types of profit
  • The characteristics of perfect competition
  • Effects of price discrimination
  • Monopoly vs. natural monopoly
  • Monopolistic competition
  • Oligopoly
  • The application of game theory in economics
  • Nash equilibrium

Lesson Objective
How to Calculate Economic Profit: Definition & Formula Describe the concept of economic profit and go through the related formula.
Accounting Profit: Definition & Formula Identify and practice the equation that allows you to determine the accounting profit.
Profit Maximization: Definition, Equation & Theory Delve into the theory of profit maximization and learn the associated equation.
Normal Profit, Supernormal Profit & Loss Situations Provide definitions for each of these terms, then discuss how those definitions can change given the following circumstances: oligopolies, competitive markets, monopolistic markets, and monopolies.
Perfect Competition in Economics & Adam Smith's 'Invisible Hand' Establish which conditions need to be in place to create perfect competition, analyze the effects of perfect competition on firms and consumers, and review Smith's concept of the 'invisible hand.'
Price Discrimination: Definition, Types & Examples Explore price discrimination and point out the different types.
What is a Monopoly in Economics? - Definition & Impact on Consumers Outline the conditions necessary for a monopoly, describe reasons that explain why policymakers both allow and discourage monopolies, and show the influence monopolies have on producers and consumers.
Natural Monopoly in Economics: Definition & Examples Investigate the existence of natural monopolies and offer examples of service providers who possess natural monopolies.
Understanding Monopolistic Competition in Economics Elaborate on the concept of monopolistic competition, identify and compare industries that are in monopolistic competition, and discuss how this competition affects the economy.
Characteristics of Monopolistic Competition Breakdown monopolistic competition even further into the following three components: product differentiation displayed via advertising; profit maximization; and inefficiency, excess capacity, and both long-run and short run equilibrium.
What is an Oligopoly? - Definition & Impact on Consumers Scrutinize the advantages and disadvantages of an oligopoly, determine the characteristics of an oligopoly, show the effect it has on producers and consumers, then analyze the communication tactics of producers within oligopolies.
What is Game Theory? - Explanation & Application in Economics Describe the tenets of game theory, go over the prisoner's dilemma, then show the connection between game theory and the prisoner's dilemma as compared to the connection between the main economic systems and economics.
Nash Equilibrium & Game Theory Identify the characteristics of Nash equilibrium, detail how this impacts supply and demand, then differentiate between Nash and market equilibrium.

13 Lessons in Chapter 7: Firm Behavior & Monopoly in Microeconomics
Test your knowledge with a 30-question chapter practice test
How to Calculate Economic Profit: Definition & Formula

1. How to Calculate Economic Profit: Definition & Formula

Learn what economic profit is and how it's different from standard accounting profit in this lesson. Find out the formula for calculating economic profit and why it's possible to have a positive accounting profit and a negative economic profit.

Accounting Profit: Definition & Formula

2. Accounting Profit: Definition & Formula

In this lesson, you'll learn what accounting profit is and why it's important in the world of finance and business. You'll also examine some of the basic terminologies and the most common financial statements that include accounting profit.

Profit Maximization: Definition, Equation & Theory

3. Profit Maximization: Definition, Equation & Theory

What is profit maximization? Why would we want to maximize our profits, rather than revenues or sales? In this lesson we'll discuss what profit maximization is, how to calculate it, and why it's important to understand the concept.

Normal Profit, Supernormal Profit & Loss Situations

4. Normal Profit, Supernormal Profit & Loss Situations

In this lesson, we will examine the difference between normal and supernormal profit, as well as losses, and discuss them in the context of different market conditions.

Perfect Competition in Economics & Adam Smith's 'Invisible Hand'

5. Perfect Competition in Economics & Adam Smith's 'Invisible Hand'

In this lesson, you'll learn how consumers and producers interact in a perfectly competitive economic system. You'll also be introduced to how Adam's Smith concept of an 'invisible hand' can help keep such systems in line.

Price Discrimination: Definition, Types & Examples

6. Price Discrimination: Definition, Types & Examples

This lesson defines types of price discrimination. We'll use several scenarios to explore the use of price discrimination in the real world.

What is a Monopoly in Economics? - Definition & Impact on Consumers

7. What is a Monopoly in Economics? - Definition & Impact on Consumers

In this lesson, you will learn about monopolistic markets and what a monopoly means for producers and consumers. After this lesson, you will understand why the name of one of our all-time favorite board games really makes perfect sense.

Natural Monopoly in Economics: Definition & Examples

8. Natural Monopoly in Economics: Definition & Examples

Find out what a natural monopoly is and why they exist. Learn about some everyday services that you use that are provided by companies that are natural monopolies.

Understanding Monopolistic Competition in Economics

9. Understanding Monopolistic Competition in Economics

In this lesson, we'll learn about monopolistic competition. This type of competition can be found in a free market where products are differentiated, but not so differentiated that any single firm has the power to influence market prices.

Characteristics of Monopolistic Competition

10. Characteristics of Monopolistic Competition

Competition is what makes the business world thrive. In this lesson we will learn about one type of competition known as monopolistic competition. We will learn about the characteristics and how a business might be affected now and in the future.

What is an Oligopoly? - Definition & Impact on Consumers

11. What is an Oligopoly? - Definition & Impact on Consumers

In this lesson, we will discuss a market structure that is actually quite common in the United States, as well as most other industrialized countries: oligopolies. Oligopolies are the market structures that sit somewhere between a monopoly and perfect competition. In this lesson, we will find out how.

What is Game Theory? - Explanation & Application in Economics

12. What is Game Theory? - Explanation & Application in Economics

Economics is just as much about consumer and producer behavior as it is about finance or the allocation of resources. With that in mind, this lesson will explain one of the most fundamental tools economists use to frame competitive decision making.

Nash Equilibrium & Game Theory

13. Nash Equilibrium & Game Theory

The 2001 movie, 'A Beautiful Mind,' told the story of John Nash, a Nobel Prize-winning economist who theorized the Nash equilibrium. In this lesson, we'll learn about Nash equilibrium by studying game theory.

Chapter Practice Exam
Test your knowledge of this chapter with a 30 question practice chapter exam.
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Practice Final Exam
Test your knowledge of the entire course with a 50 question practice final exam.
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