Ch.13 Monopoly

Question 1

monopolist

Answer 1

sole producer of a good, has market power (can raise price by reducing output)

Question 2

barriers to entry

Answer 2

1. control of scarce resource
2. increasing returns to scale (large fixed costs)
3. technological superiority
4. network externality (users belong to group, phones)
5. government created barriers (patents, copyrights)

Question 3

patent

Answer 3

inventor has sole right to make, use or sell for 15-20 years

Question 4

copyright

Answer 4

inventor has sole right to profit for lifetime plus 70 years

Question 5

quantity effect

Answer 5

selling another unit increases total revenue by price of the unit, dominates for low ouputs

Question 6

price effect

Answer 6

selling another unit requires that the price be lowered for all units sole, dominates for high levels of output, reduces revenue

Question 7

a monopolist sells ____ at the price____

Answer 7

number of goods where MR = MC, on the demand curve for that value of Q

Question 8

regulation

Answer 8

public ownership, price regulation, monopoly will produce as long as price is above ATC

Question 9

price discrimination

Answer 9

inelastic demand = higher price

elastic = lower price

Question 10

perfect price discrimination

Answer 10

charge at consumers’ WTP, no consumer surplus, perfectly efficient

Question 11

methods for achieving perfect price discimination

Answer 11

student/senior discounts, advance purchase restrictions, volume discounts, two-part tariffs (flat rate plus unit cost)

Question 12

methods for achieving perfect price discimination

Answer 12

student/senior discounts, advance purchase restrictions, volume discounts, two-part tariffs (flat rate plus unit cost)