Chapter 13 - Monopoly

Question 1

What is Price Discrimination?

Answer 1

Selling the same product to different consumers/ grp of consumers at different prices

Question 2

What’s the difference between a monopolist and a perfect competitor?

Answer 2

On the cost side of things, both look for the minimum cost of production. However, for revenue, a monopolist can do whatever he wants while a perfect competitor has to maintain the price or lose business

Question 3

Perfect Competitor

Answer 3

1. Small part of market
2. Can sell whatever and how much ever BUT at market price
3. Demand curve is horizontal line
4. Perfectly Elastic demand

Question 4

Monopolist

Answer 4

1. It is THE market
2. It sets the market price by comparing with others
3. Sets price by looking at tradeoff bw more prices per unit vs lesser units sold

Question 5

How do a perfect competitor and a monopolist differ in terms of business decisions

Answer 5

P.C. only has to check market price and cost of production to see if its profitable to produce that item
Monopolist has to define the demand curve through trial and error to see how much people are actually willing to pay for their product. Eg. Apple and their iPod

Question 6

As a monopolist increases the quantity of products produced, how does the price per unit change?

Answer 6

Decreases

Question 7

When is profit maximized for a monopolist?

Answer 7

When Marginal Revenue = Marginal Cost

Question 8

Till when could an ideal person( Monopolist or Competitive firm) increase output?

Answer 8

As long as Marginal Revenue > Marginal Cost

Question 9

When does the maximum total revenue occur for a monopolist?

Answer 9

Its when the Marginal Revenue reaches 0, i.e. midway between 0 o/p and o/p at which price is 0

Question 10

Can a monopolist face an elastic demand curve?

Answer 10

Yes. Depends on characteristics of their products
Eg. Microsoft produces windows. They can’t increase their prices too high for a newer version coz then people would just stick with the older one.

Question 11

Why is there an absence of Supply Curves in Monopoly?

Answer 11

The monopolist sets both the price and quantity, and supply of o/p depends on MC and demand curves. Hence no separate supply curve as such.
It depends on the demand curve

Question 12

Barriers to Entry

Answer 12

Factors that prevent new firms from entering and competing in imperfectly competitive markets

Question 13

How is the MR curve differing in PC and Monopolies?

Answer 13

PC - its a straight horizontal line

Monopoly - its a straight line with a slope steeper than the demand curve

Question 14

Natural Monopoly

Answer 14

When scale economies are huge compared to the market so costs are minimized with a single firm.

Question 15

Patent

Answer 15

A barrier to entry that provides exclusive use of patented product/process to the inventor

Question 16

Network Externalities

Answer 16

Value of that product to consumer increases as more of the product is sold in the market. Eg. Facebook

Question 17

Rent Seeking Behaviour

Answer 17

Actions taken by firms to preserve economic profit

Question 18

Government Failure

Answer 18

When the govt helps in rent-seeking behaviour which makes the allocation of resources a lot less efficient (failure of govt to the consumers)