Final D2 Flashcards
(25 cards)
(Monopoly) For the Price elastivcity of Demand, What does MR = to ?
MR = p(1 + 1/e) where, e = - p/Q
(Monopoly) What is the Lerner Index equal to ?
(p - MC)/p = - 1/e
(Monopoly) Where do we add the tax (t) and what is it equal to after the tax (t) is added
Add the tax (t) to the MC and then MC = xQ + t
(Monopoly) Who absorbs the tax when added? (equation)
∆p / t is the consumer, and 1 - ∆p / t is firm
What is a network externality ?
If one’s person demand depends on the consumption of a good by others
What is the bandwagon effect
Person places greater value on a good as more and more other people possess it.
What is the snob effect
Person places greater value on a good as fewer and fewer pther people possess it.
Which factors make firms able to Price Discriminate? (3)
- Must have market power
- Consumer with different demand curves
- Must be able to prevent resale or limit it
What is the Perfect Price Discrimination (first degree)
Sell each unit at Maximum price any customer is willing to pay. Different price for everyone
What is Group price discrimination? (3rd degree)
Different prices to each different groups
What is Nonlinear price discrimination ? (2nd degree)
Different prices for different quantities
What is the total profit in a group price discrimination pricing
π = πa + πb
What is the price elasticity of demand in group price discrimination pricing
Pa/Pb = (1 + 1/ ea) / (1 + 1/eb)
What is the Two-Part Pricing
Charging consumer access fee of their CS and a separate price per unit
What is the Tie-In Sales pricing ?
Buy one product only if they purchase another one. (bundling)
When does a Monopoly stops Advertising ?
When its benefits from advertising is equal to its cost of advertising
What is an Oligopoly
Small group of firms in a market with substantial barriers to entry
What is a Monopolistic Competition
Firms have market power, but no additional firm can enter and earn profit
What is a Cournot Oligopoly
Both firms choose their quantity without colluding simultaneously
What is a Cournot-Nash Equilibrium ?
A set of quantities chosen by firms such that, holding the quantities of all other firms constant, no firm can obtain a higher profit by choosing a different quantity
What is the Cournot-Nash equilibrium MR in duopoly
MR = D - 2qa - qb
What is the Stackelberg Oligopoly
One firm acts before the other (leader)(follower)
What is the Bertrand Oligopoly
Oligopolies setting prices instead of quantities
What is a sealed-bid auction
Everyone submit simultaneously without seeing other bids, and the highest bid wins
