7 - Monopoly Power

Question 1

What is the Magnitude of the Market Power of a Monopoly?

1.
2.
3.

Answer 1

• price mark-up compared to competitive market
• depending on demand
• depending on elasticity of demand

Question 2

What is….

1. Elasticity?
2. price elasticity of demand?

Answer 2

1. percentage change of one variable as result of an 1% change in another variable
2. percentage change of quantity demanded as a result of a 1% increase in prices

Question 3

What is the colloquial?

Answer 3

absolute value of elasticity | Ep |

Question 4

How do we calculate elasticity?

Answer 4

derivative of Qd x (P/Qd)

or

delta Qd / delta P x P/Qd

Question 5

What does the Lerner Index entail?

1.
2.
3.
4.

Answer 5

• measures market power
• mark up in relation to price
• share of mark up in price
• the lower elasticity of demand in absolute terms the higher market power