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Microeconomics > Chapter 10 > Flashcards

Chapter 10 Flashcards

1
Q

What kind of slope does the demand curve of a monopoly have?

A

It has a negatively sloped demand curve

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2
Q

What kind of tradeoff does a monopolist face as a consequence of its negatively sloped demand curve?

A

A tradeoff between the price it charges and the quantity it sells

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3
Q

What is the total revenue equal to if a monopolist charges the same price for all units sold?

A

TR = p x Q

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4
Q

What is average revenue?

A

It is total revenue divided by quantity

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5
Q

What is the equation for average revenue?

A

AR = TR/Q = (p x Q)/Q = p

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6
Q

What is the monopolist’s average revenue curve?

A

The monopolist’s demand curve

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7
Q

What is marginal revenu?

A

It is the revenue resulting from the sale of one more unit of the product

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8
Q

What is the equation for marginal revenue?

A

MR = ΔTR/ΔQ

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9
Q

What must a monopolist do in order to sell one extra unit?

A

It must reduce the price that it charges on all units

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10
Q

What is not the price received for one extra unit sold for a monopolist?

A

It is not the firm’s marginal revenue because by reducing the price of all previous units, the firm loses some revenue

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11
Q

What is marginal revenue equal to?

A

It is equal to the price minus this lost revenue

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12
Q

What is the marginal revenue for the monopolist?

A

It is less than the price that the monopolist receives for that unit so the monopolist’s MR curve lies below the demand curve

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13
Q

Where is the profit-maximizing output for the monopoly?

A

When MC = MR

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14
Q

When does the monopolist make an economic profit?

A

When p > ATC

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15
Q

What determines the price in the monopoly?

A

The demand curve

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16
Q

Why doesn’t the monopolist have a supply curve?

A

Because it is not a price taker

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17
Q

How does the monopolist choose its profit-maximizing price-quantity combination?

A

From among the possible combinations on the market demand curve

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18
Q

The level of output in a monopolized industry is [less/more] than the level of output that would be produced if the industry were perfectly competitive

A

less

19
Q

For a monopoly, p is what?

A

p > MC

20
Q

In a monopoly, the marginal value to society of extra units, as reflected by price, [is less than/is greater than] the marginal cost of producing the extra units

A

is greater than

21
Q

When would more economic surplus be generated for society?

A

If the monopolist increased its level of output

22
Q

What does the monopolist’s profit-maximizing decision to restrict output below the competitive level create?

A

It creates a loss of economic surplus for society - a deadweight loss

23
Q

What does a monopoly lead to?

A

It leads to market inefficiency

24
Q

For monopoly profits to persist what needs to be prevented?

A

The entry of new firms

25
Q

How can the entry of new firms be prevented?

A

An entry barrier - natural vs created
A natural monopoly
Network effects

26
Q

How are many entry barriers created

A

By conscious government actions

27
Q

In the very long run, what kind of changes can circumvent effective entry barriers?

A

Technological changes and innovations

28
Q

What is creative destruction?

A

It is the elimination of one product by a superior one

29
Q

What does technological progress act as?

A

It acts as an agent of a change and economic growth that comes with periodic loss of privileged positions on the part of the displaced firms and their workers

30
Q

What are cartels?

A

Cartels are a type of illegal monopoly that tend t be unstable because members have incentive to cheat

31
Q

What happens when all firms cheat?

A

The price falls back toward the competitive level, and joint profits will not be maximized

32
Q

What must a successful cartel do?

A

It must prevent the entry of new producers
They are also often able to license the firms in the industry and to control entry by restricting the number of licenses

33
Q

What is price discrimination?

A

It is the sale by one firm of different units of a product at two or more different prices for reasons not associated with differences in cost

34
Q

If price differences reflect cost differences, then they are not ____

A

discriminatory

35
Q

When price differences are based on different buyer’s valuations of the same product, they are ____

A

discriminatory

36
Q

When is price discrimination possible?

A

Market Power
Different Valuations of the Product
Prevent Arbitrage

37
Q

What is price discrimination among units of output

A

A firm captures consumer surplus by charging different prices for different units sold

38
Q

What is price discrimination among market segments?

A

It is a more common form of price discrimination thant price discrimination among units because it is easier for firms to distinguish between different market segments than it is to detect an individual consumer’s willingness to pay for different units of that product

39
Q

What is close to perfect price discrimination?

A

When each unit sold is at each client’s personal value

40
Q

Can price discrimination be based on quantity and quality?

A

Yes it can

41
Q

When does hurdle pricing exist?

A

When firms create an obstacle that consumers must overcome to get a lower price

42
Q

What can consumers do when hurdle pricing exists?

A

They can assign themselves to various market segments - those who don’t want to jump the hurdle are willing to pay the high price, and those who choose to jump the hurdle to benefit from the low price

43
Q

What does the most profitable system of discriminatory prices for any given level of output provide to the firm?

A

Higher profits than the profit-maximizing single price

44
Q

What will a monopolist that price discriminates among units produce?

A

They will produce more output thant will a single-price monopolist

Microeconomics (14 decks)

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