Chapter 10: Monopoly Flashcards
Market Power
Ones ability to alter the market price of a good or service
Monopoly
To control the entire market supply of a good or service
Profit-Maximization Rule
A firms rate-of-output should be where marginal revenue equals marginal cost
Marginal Revenue (MR)
A change in total revenue based on a one-unit increase in quantity sold
Barriers to Entry
Factors making entering into a market very difficult
Economies of Scale
A reduction in minimum average costs, when scale of production increase
Production Decision
Deciding weather a firm should produce a product considering existing plants and equipment.
Average Total Cost (ATC) Formula
Total Cost / Quantity Produced
Marginal Cost Pricing
Supply of goods = Marginal Cost
Price Elasticity of Demand Formula
% change in quantity / % change in price
Price Discrimination
A good is priced differently to various consumers
Consumer Surplus
Max price willing to pay - price paid
Natural Monopoly
A firm able to achieve economies of scale over the entire market supply
Contestable Market
A industry that can be entered if prices of profits increase
Antitrust
Government Intervention in order to prevent abuse of market power
How do you find profit Maximization on a graph?
where MC and MR cross
MR will always be _________ than its price when the DC is downward sloping?
Less
What do competitive industrys pursue?
Cost reductions, and product improvements
Mix of Output
Informs of true opportunity costs
What affects output, employment, and resource allocation?
Changes in prices and product factors
Inelastic Demand =
Increased Profits
Greater price elasticity of demand =
Difficulty raising up prices and production volume
What kind of elasticity occurs when businesses request demand?
Inelastic
What kind of elasticity occurs when nonbusiness demand is requested?
Elastic
Entry Barriers include….
Patents, Monopoly Franchises, Key Input control, Lawsuits, Aquisition, Economies of Scale
How are Patents considered an Entry Barriers?
They give exclusive rights to produce a product
How are monopoly franchises considered to be an entry barrier?
A firm is given exclusive rights to supply a specific good or service
How is controlling key inputs a entry barrier?
Firms are given exclusive access to landing rights, transmission networks, venues, or operating systems
How are lawsuits used as a entry barrier?
they waste competitors time, money and management
How is acquisition a entry barrier?
If a company purchases a competitor there is no competition
Market Power Argument #1
Monopolies have the greater ability to research and develop
Market Power Arguement #2
Creates incentive for invention and innovation
Market Power Argument #3
Products can be produced efficently
