- [Instructor] In this video,
we're going to dig a little bit
into the idea of what it
means to be a monopoly,
and so to help us appreciate that,
let's think about the spectrum
on which firms can be.
So this is going to be my
spectrum right over here.
Now at the left end,
we can imagine this idealized
perfect competition,
perfect competition,
and we've talked about
that in the other videos,
but just as a review, this
is where you have many firms.
This is where they are selling
an undifferentiated product
or service,
undifferentiated,
undifferentiated product.
The firms over here,
well, they have no
barriers to entry or exit,
so no barriers
to entry
or exit.
These firms that we've
talked about in other videos,
they need to be price takers.
Why do they need to be price takers?
Well, whatever the market price is,
since no one cares which of these firms,
which of these many firms
they get the product from,
none of those firms can
really set their own price.
If they were to go above the market price,
well then no one will buy from them,
and so they will just
be price, price takers,
and other things that we assume
about perfect competition is
that all of the actors in
the market, both the buyers,
the many buyers and the many sellers,
they all know what the
transactions are going on for.
They know who's selling
to whom for what amount.
Now the other extreme,
this is where we have
the monopoly, monopoly.
Here, instead of many firms
selling or many firms producing,
you have exactly one firm producing.
Instead of an undifferentiated product,
well, it's differentiated
because it's the only firm.
Instead of no barriers to entry or exit,
here we have the exact opposite,
so you could say insurmountable,
insurmountable, mountable,
I'll just abbreviate it,
barriers, especially to enter,
and instead of being a price
taker, you are a price setter,
price setter.
You're the only player.
You're the only actor
who is selling anything,
So you can decide what
price to sell it at.
Now, perfect competition
as I talked about,
it's a bit of a theoretical idea.
It's hard to say any market
that is absolutely perfect,
but we can imagine markets
that are on this spectrum,
some closer to perfect competition,
some closer to a monopoly.
Things that I can imagine that are closer
to perfect competition
might be, let's say,
agriculture or a certain
type of agriculture.
Let's say you are buying
pistachios, and you might be,
most people are indifferent
as to where their pistachios come from,
although some people might beg to differ
that certain types of pistachios
are better than others,
but for the most part,
that'd be closer to perfect competition.
There will be just a price
in the market for pistachios.
If someone wants to grow pistachios,
I'm not familiar with what
it takes to grow pistachios,
and I apologize to any offense
to any pistachio growers out there,
but maybe they can just get enough land,
and there's very close
to low barriers to entry,
and they can start producing pistachios.
As I mentioned, many would
perceive it as undifferentiated,
and there might be many firms
in, say, the pistachio market.
I actually don't know if that's the case,
but let's just assume
if that were the case it would be closer
to a perfect competition.
Now a monopoly, you can
imagine things like things
that take a lot of infrastructure
in order to do that service.
So I can imagine things like,
over here, close to monopoly
or at monopoly.
You can imagine things like
utilities providers, utilities,
where it's hard for multiple
people to run power lines
to the various houses.
You can imagine things like this.
Telecom, telecom providers might be close,
although in most geographies,
you have more than one telecom providers,
although in some parts of the world,
you're getting pretty close
to one because, once again,
there's very, very, very
high barriers to entry
in either one of those.
You gotta launch satellites
and put cable under the ground
and dig up roads and
whatever until you get closer
and closer to this notion
of maybe there's one firm.
If you're in a situation
like telecom in a lot
of the places where you have
only a handful of firms,
that's known as an oligopoly,
but let's just think about the extreme,
when you're in a monopoly situation,
and so the next few videos,
we're gonna dive a little bit deeper
into what it means to be a monopoly,
and what is the rational quantity
for a profit-maximizing monopolistic firm
to actually produce,
and what would be their economic profit?
