Chapter 10 - Monopoly, Cartels, and Price Discrimination Flashcards
Differentiate monopoly and monopolist
Monopoly: market with a single firm
Monopolist: a firm that’s the only seller in the market
What is a monopolists’ DC?
Downward sloping
Give the equation for total revenue (TR) when monopolists charges the same price
TR = p x Q
Give the equation for average revenue (AR)
AR = TR/Q AR = (p x Q)/Q = p
Give the equation for marginal revenue (MR)
MR = dTR/dQ
Since monopolist is not a price taker (compared to perfect competition), what is MR?
MR = a -2bQ
Describe the slope of MR
Twice the DC, lying below it
When MR > 0, elasticity is _ 1
>
When MR < 0, elasticity is _ 1
When MR = 0, elasticity is _ 1
=
The monopolist’s restriction of output creates a _ for society
Deadweight loss
Entry barriers allow monopoly profits to persist in the _ run
Long
What are economies of scale?
When industry demand conditions doesn’t allow more than one firm to cover its costs
What causes a natural monopoly?
Economies of scale
What are two created barriers?
Firms already in the market
Government regulations
What is creative destruction?
The replacement of one monopolist by another through innovation
What is a cartel?
Organization of producers who act as a single seller to maximize joint profits
What are anti-trust policies?
Prevent the creation of large cartels would have considerable market power
The profit maximizing cartelization of a competitive industry (inc/dec) output and (inc/dec) price from the perfectly competitive level
Decreases, increases
Why are cartels unstable?
Members have an incentive to cheat
What is price discrimination?
Charging different prices for the same product that have the same cost
Any firm facing a _-sloping DC can increase profits if it is able to price discriminate
Downward
Weekend airline fares that are less than mid-week fares
Discriminatory
Business-class airline fares that are 3 times as high as economy fare
Not discriminatory
Different prices charged by movie theatres for adults/seniors/ or students
Discriminatory
When is price discrimination possible (3)?
When firms have market power
When consumers differ in their valuations
When firms can prevent arbitrage
(Higher/lower) price in the segment with less elastic demand
Higher
(Higher/lower) price in the segment with more elastic demand
Lower
Equating MRs in 2 markets will only result in different prices when _ (3)
There are different elasticities of demand
Members of different market segment must be identifiable
Minimal or no arbitrage
What is hurdle pricing?
When firms create an obstacle that consumers must overcome to get a lower price
