Economics Chapter 9-11 Flashcards
Monopoly
one firm produces all of the output in a market
Barriers to entry
The legal, technological, or market forces that discourage or prevent potential competitors from entering a market.
Natural monopoly
where the barriers to entry are something other than
legal prohibition.
Legal monopoly
laws prohibit (or severely limit) competition. The government creates barriers to entry by prohibiting or limiting
competition.
Natural Monopolies can arise from
in industries where the marginal cost of adding an additional customer is very
low, once the fixed costs of the overall system are in place.
in smaller local markets for products that are difficult to transport.
when a company has control of a scarce physical resource.
Patent
gives the inventor the exclusive legal right to make, use, or sell the
invention for a limited time.
Trademark
an identifying symbol or name for a particular good.
Copyright
a form of legal protection to prevent copying, for commercial
purposes, original works of authorship, including books and music.
Intellectual property
the body of law including patents, trademarks,
copyrights, and trade secret law that protect the right of inventors to
produce and sell their inventions.
Implies ownership over an idea, concept, or image, not a physical piece of
property.
Deregulation
removing government controls over setting prices and
quantities in certain industries.
Predatory pricing
a firm uses the threat of sharp price cuts to
discourage competition. (can be violation of antitrust laws)
A monopolist can charge any price for its product, but the _____
for the firm’s product constrains the price.
demand
Because the monopolist is the only firm in the market, its demand
curve is the same as the
market demand curve.
Perfect competition vs Monopoly graphs
a perfectly competitive firm’s demand curve is flat.
A monopolist’s demand curve is the same as the market demand curve, which for most goods is downward-sloping.
Total costs rise as
output increases.
The highest profit will occur at the quantity where total revenue is
the farthest above total cost.
Marginal profit
profit of one more unit of output, computed as marginal
revenue minus marginal cost.
The profit-maximizing choice for the monopoly will be to produce at the quantity where
MR = MC.
Allocative efficiency
producing the optimal quantity of some
output; the quantity where the marginal benefit to society of one
more unit just equals the marginal cost.
Imperfectly competitive
firms and organizations that fall between
the extremes of monopoly and perfect competition.
Monopolistic competition
many firms competing to sell similar but
differentiated products.
Oligopoly
when a few large firms have all or most of the sales in an
industry.
Differentiated product
a product that consumers perceive as
distinctive in some way.
Perfect competition vs. Monopoly
PC: Perfectly elastic, It can sell all the output it wishes at the prevailing market price.
M: Demand curve is the market demand, It can sell more output only by decreasing the price it charges.
The demand curve faced by a monopolistically competitive
firm falls in between.
