Chp 14 Monopolies Flashcards
One seller of a product, the product doesn’t have close substitutes, and the firm is a price setter
Qualities of a monopoly
Which of the following is a barrier to entry in an industry?
a) A single firm owns a key resource that no other firm can access or has a close substitute for
b) The government gives a single firm the exclusive right to produce and sell a good
c) An industry is a ‘natural monoply,’ which occurs when a single firm can supply an entire market with a good/service more efficiently than two or more firms
d) All the above
D) All the above
A monopoly’s demand curve (downward sloping) is
The market’s demand curve
True or False:
For a monopoly, MR is always lower than P
True
Level of output that maximizes profita for a monopoly
MR = MC < P
Level of output that maximizes profita for a monopoly
MR = MC < P
Monopoly price
Occurs where the quantity of MC = MR meets the demand curve
Monopolist profit
TR - TC
Monopolists produce (more/less) than the socially efficient quantity of output and charges a (higher/lower) price
Less; Higher
True or False:
The key things needed to find Deadweight Loss is the point where MC = MR meet, where MC = D, and price where the quantity produced at MC = MR meets demand curve
True
Deadweight loss equation
1/2 x (difference between A and B) x (difference between C and B)
Producer surplus equation
Area of □A + area of □B
Competition Law
legislation to prevent mergers that would make the marlet less competitive
Regulation
When government agencies regulate the prices a monopoly can charge, usually set P = MC
Public ownership
When the government can run the monopoly itself, typically aren’t as efficient
If the inefficiency of a monopoly is small by society’s standard, governments will often?
Do nothing
The business practice of selling the same good at different prices to different customers, even though production costs stay the same regardless
Price discrimination
True or False:
Price discrimination can’t exist in a perfectly competitive market
True, there are too many sellers that are selling at market price
Price discrimination is achieved when the firm has?
Market power and the ability to segregate the market, according to consumer’s willingness to pay
Perfect price (first degree) discrimination
When a monopolist charges each individual a different price based off their exact willingness to pay
A monopolist’s producer surplus is?
The area under the demand curve, above the marginal cost curve
True or False:
Under Perfect Price discrimination, there is no deadweight loss
True
Multi-part/block pricing (second degree) discrimination
Charging a different price based on the quantity of product sold
Ordinary (Third Degree) Price Discrimination
Charging different prices for goods in different markets
