Chapter 10 Flashcards
a fundamental feature of a monopolistic market is that the firm
faces the price and quantity trade off dictated by market demand
for the single-price monopolist, the average revenue curve
is the same as the market demand curve
if average revenue declines as output increases, marginal revenue must
also decline and be less than average revenue
a single-price monopoly is able to make positive profits only if the average total cost curve
intersects the demand curve
compared to a perfectly competitive industry with the same cost curves, a monopoly
creates market inefficiency AND less economic surplus
when price discrimination does not increase output, it increases a monopoly’s profits because it
allows the firm to capture some consumer surplus
as long as marginal cost is positive, a profit-maximizing single-price monopolist will operate
on the elastic portion of the demand curve
in perfect competition, the industry short-run supply curve is the horizontal summation of the marginal cost curves (above AVC) of all of the firms in the industry. in monopoly, the short-run supply curve
does not exist
suppose a firm’s minimum efficient scale (MES) occurs at an average total cost of $4 and an output of 4 million units, while quantity demanded at a price of $4 is 3 million units. given that the demand curve is downward-sloping, one can conclude that
the firm is a natural monopoly
suppose the elasticity of demand for electricity by residential customers of BC Hydro is 0.8 while that of industrial customers is 1.2. BC Hydro could practice price discrimination by charging
residential customers a higher price per kWh
price discrimination between two markets will result in
equal marginal revenues across markets
- equal marginal costs across markets
- a marginal revenue equal to marginal cost in each market
- a lower price in the market with the relatively more elastic demand
