Key terms - Monopoly Flashcards
Average cost pricing rule
Sets the price equal to ATC.
Barrier to entry
A constraint that protects a firm from potential competition. Three types: natural, ownership, legal.
Deregulation
The process of removing regulation of prices, quantities, entry, and other aspects of economic activity in a firm/industry.
Marginal cost pricing rule
Being regulated to set price equal to marginal cost.
Economic rent
Any surplus - consumer/producer surplus, or economic profit.
Legal monopoly
A market in which competition and entry are restricted by the granting of a monopoly franchise, a government licence, a patent, or a copyright.
Rate of return regulation
A firm must justify its price by showing that its return on capital doesn’t exceed a specified target rate.
Monopoly
A market with a single firm that produces a good/service with no close substitute and that is protected by a barrier to entry.
Natural monopoly
Created by natural barriers to entry; a market in which economies of scale enable one firm to supply the entire market at the lowest possible cost.
Social interest theory
The political and regulatory process relentlessly seeks out inefficiency and introduces regulation that eliminates deadweight loss and allocates resources efficiently.
Price discrimination
A firm sells different units of a good/service for different prices.
Single-price monopoly
A monopoly that must sell each unit of its output for the same price to all its customers.
