Chapter 10 Flashcards
The difference in individual firm in perfect competition and monopoly
The individual supplier is an atomistic unit with no market power. In contrast, a
monopolist has a great deal of market power, for the simple reason that a monopolist is the sole
supplier of a particular product and so really is the industry
Is there a difference between short run and long run for a monopolist
Furthermore, the distinction between long run and short run is blurred, because a monopoly that
continues to survive as a monopoly obviously sees no entry or exit.
There are three main reasons for the existence and continuance of
monopolies:
Scale economies, national policy and successful prevention of entry
What is a natural monopoly
When LATC is constantly declining-. there is no the least cost of production-> bigger firm will always overrule the smaller ones
Can natural monopoly turn into competitive market?
Yes
Bell Canada was considered to be a natural monopoly in the era of land lines: It
would not make economic sense to run several sets of phone lines to every residence. But that was
before the arrival of cell phones. Canada Post was also thought to be a natural monopoly, until
the advent of FEDEX, UPS and other couriers proved otherwise
What is the downside of the monopoly born from national policy
Industries
that are not subject to competition can become fat and uncompetitive: Managers have insufficient
incentives to curtail costs; unions realize the government is committed to sustain the monopoly
and push for higher wages than under a more competitive structure.
What is the legal form of entry barrier
copyright and patent protection
other ways of maintaining barriers to entry
Predatory pricing (the pricing of goods or services at such a low level that other suppliers cannot compete and are forced to leave the market)
Lobbying government (A lobby is typically formed to influence government officials to act in a way that is beneficial to the lobby’s best interests, either through favorable legislation or by blocking unfavorable measures.)
Excess production capacity (Excess capacity indicates that demand for a product is less than the amount that the business potentially could supply to the market. )
Network goods ( a good (product or service) that has higher value the more customers that use it.)
difference between MR and MC
MR- marginal revenue->change in total revenue obtained by selling one more unit
MC-change in total cost obtained by producing one more unit
Average revenue is
Revenue per unit sold=price
The maximum revenue point occurs where
The price elasticity is unity (-1), at the midpoint of a linear demand curve
MR=0
How to decide what is the optimal output for the monopolist
If MR > MC, increase output
If MR < MC, reduce output
If MR = MC, output is optimal, or where the difference between TR and TC is the greatest
Is total revenue is maximized at the same output capacity and profit?
No
with a
straight-line demand curve total revenue is a maximum at the ____
midpoint of the demand curve.
the MR curve must intersect the quantity axis ___
midway between zero and the horizontal-axis
intercept of the demand curve
