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Questions over how to define the market continue today.
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Supreme Court held that the broader market definition was more appropriate, and it dismissed the case against DuPont. In 1956, after years of legal appeals, the U.S. DuPont countered that even though it had a 75% market share in cellophane, it had less than a 20% share of the “flexible packaging materials,” which includes all other moisture-proof papers, films, and foils. In a famous 1947 case, the federal government accused the DuPont company of having a monopoly in the cellophane market, pointing out that DuPont produced 75% of the cellophane in the United States. (The Clear It Up feature discusses how hard it is sometimes to define “market” in a monopoly situation.)Ī monopoly is a firm that sells all or nearly all of the goods and services in a given market. However, because a monopoly faces no competition, its situation and its decision process will differ from that of a perfectly competitive firm. We can analyze the pattern of costs for the monopoly within the same framework as the costs of a perfectly competitive firm-that is, by using total cost, fixed cost, variable cost, marginal cost, average cost, and average variable cost. How will this monopoly choose its profit-maximizing quantity of output, and what price will it charge? Profits for the monopolist, like any firm, will be equal to total revenues minus total costs.
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Explain the perceived demand curve for a perfect competitor and a monopoly.By the end of this section, you will be able to: