Page 309 - The Principle of Economics

MONOPOLY
If you own a personal computer, it probably uses some version of Windows, the operating system sold by the Microsoft Corporation. When Microsoft first de- signed Windows many years ago, it applied for and received a copyright from the government. The copyright gives Microsoft the exclusive right to make and sell copies of the Windows operating system. So if a person wants to buy a copy of Windows, he or she has little choice but to give Microsoft the approximately $50 that the firm has decided to charge for its product. Microsoft is said to have a mo- nopoly in the market for Windows.
Microsoft’s business decisions are not well described by the model of firm behavior we developed in Chapter 14. In that chapter, we analyzed competitive mar- kets, in which there are many firms offering essentially identical products, so each firm has little influence over the price it receives. By contrast, a monopoly such as Microsoft has no close competitors and, therefore, can influence the market price of its product. While a competitive firm is a price taker, a monopoly firm is a price maker.
IN THIS CHAPTER YOU WILL . . .
Learn why some markets have only one seller
Analyze how a monopoly determines the quantity to produce and the price to charge
See how the monopoly’s decisions affect economic well-being
Consider the various public policies aimed at solving the problem of monopoly
See why monopolies try to charge different prices to different customers
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