Chapter 4 Concentrated Markets : Theory Of Monopoly

Question 0

Define Barriers to entry

Answer 0

Obstacles that stop new firms entering a market

Question 1

Define monopoly

Answer 1

A single seller in an industry.

There are barriers to entry

Question 2

Define x-inefficient

Answer 2

Not reducing costs to their lowest level

Question 3

Sources of monopoly power

Answer 3

Patent laws
Nationalisation
Exploitation of economies of scale + limit pricing
Hight sunk costs
Differentiate their products
Control of essential raw materials

Question 4

Copyright

Answer 4

Ownership of rights

Question 5

Limit pricing

Answer 5

Setting a price so low that other firms will not enter the market

Question 6

Sunk costs

Answer 6

Irretrievable costs that occur when a firm exits and industry

Question 7

Product differentiation

Answer 7

A way of distinguishing a product from that of competitors

Question 8

MC pricing

Answer 8

Setting price at the level of MC

Question 9

AC pricing

Answer 9

Setting the price at the level of average costs

Question 10

Deadweight loss

Answer 10

Reduction in Consumer and producer surplus when output is restricted to less than the optimum level

Question 11

Price discrimination

Answer 11

Where an identical gd or s is sold to different customers at different prices for reasons not associated with costs

Question 12

Methods of price discrimination

Answer 12

Geographical
Time
Age of customer

Question 13

Second degree price discrimination

Answer 13

Occurs when different prices are charged depending on the quantity consumed.

Question 14

Third degree price discrimination

Answer 14

Involves charging different prices to different groups of people. Market is separated by time or geography.

Question 15

Advantages of price discrimination

Answer 15

Increase profits redistribute income from consumers to producers
Price discrimination is profitable and will provide a higher level of TR to the firm than the best selling price.
Output will be larger without lowering price

Question 16

Disadvantages of price discrimination

Answer 16

Loss of welfare
Inequitable
If profits are reinvested, consumers might derive long run benefits in terms of increased efficiency and lower prices and costs
Lower price might mean consumers can afford the product