chapter 10 Flashcards
1
Q
pure monopolist
A
- firm that is the only supplier of a unique product with no subs
2
Q
why do monopolies occur
A
- single firm owns a key resource
- gov gives a single firm rights to produce a good
- network economies (ex. microsoft used in 80% of computers)
- natural monopoly: single firm can produce the entire market Q at a cost lower than could several firms
3
Q
revenue concepts for single price monopolist
A
- negatively sloped demand curve
- trade off between price charged and quantity sold
- to sell more, lower price
- if monopolist charges same price for all units, TR = P x Q
4
Q
average revenue for monopolist
A
- total revenue / Q
- (p x q)/ q = p
- demand curve is also AR curve
5
Q
Marginal revenue
A
- revenue resulting form sale of one more unit of product
- delta TR/deltaQ
- bc downward sloping demand, must reduce price that it charges on all units to sell an extra unit
- price received for extra unit is not the marginal revenue because some revenue lost by reducing price
6
Q
marginal revenue curve
A
- the same vertical intercept as the demand curve and horizontal intercept only half as large as that of the demand curve
7
Q
short run profit maximization
A
- maximizing output Q where MR = MC
- price determined by demand curve
- positive profits if price exceeds ATC
- no supply curve because not a price taker
- chooses profit maximizing quantity price combinations from possible combos on demand curve
8
Q
competitive vs monopoly: output and price
A
- level of output of monopoly industry is less than level of output of competitive
- for competitive price = MC
- for monopoly price > MC
9
Q
competitive vs monopoly: economic surplus
A
- mroe economic surplus if monopolist increases level of output
- monopolists profit maximizing decision to restrict output below competitive level creates loss of economic surplus - DWL
- leads to market inefficiency
10
Q
the very long run and creative destruction
A
- technological changes and innovations in the vlr can create entry barriers
- schumpeter: monopoly provides incentives to innovate
- replacement of monopolists through innovation
- sometimes gov help needed to break monopolies
11
Q
cartel
A
- coalition of firms that agree to restrict output for purpose of gaining economic profit
- normally involve several firms
- agreements not legally enforceable and can be unstable
- temptation to cheat
12
Q
cartel problems
A
- any one firm has incentive to cheat
- if all firms cheat, price falls to competitive level and joint profits wont eb maximized
- cartels must be able to prevent entry
- cartels are often able to control entry by restricting number of licences in industry
13
Q
price discrimination
A
- charging different buyers different prices for the same good or service
14
Q
how is price discrimination possible
A
- separate markets into submarkets, each with a different demand curve and charge a different price in each submarket
- prevent buyers from buying at a low price in one submarket and reselling at a higher price in another submarket
15
Q
price discrimination among units of output
A
- firm captures consumer surplus by charging different prices for different units sold
16
Q
price discrimination among market segments
A
usually easier for firms to distinguish between different groups fo consumers (market segments) than to detect individuals willingness to pay for different units of product - more common
17
Q
perfect price discrimination
A
- monopolist charges each customer exactly what they are willing to pay
- production level the same as a perfectly competitive market (p=mc) but consumer surplus vanishes
- all economic surplus becomes producer surplus
- no DWL
18
Q
hurdle pricing
A
- when firms create obstacle that consumers must overcome to get lower price
- consumers assign themselves to diff segments
- those who want to jump hurdle to benefit and those who dont want to jump and are willing ot pay
19
Q
consequences of price discrimination
A
- monopolist that price discriminates will produce more output than a single price monopolist
- if price discrimination leads to increase in total output, total economic surplus will increase and outcome will be more efficient
