Lecture 3 monopoly behavior Flashcards
1
Q
What can companies do with monopoly power?
A
- Restrict production to rise price
- More sophisticated price strategies
- Differentiate product to increase market power
2
Q
1st Degree price discrimination
A
- Each output unit is sold at thhe maximum possible price
3
Q
2nd degree price discrimination
A
- Price paid by buyer can vary with the quantity demanded
- All customers pay the same price schedule
4
Q
3rd degree price discrimination (group pricing)
A
- Price paid by buyers in a given group is the same for all units produced.
- Price may differ between buyers
5
Q
Two part tariff
A
Lump sum fee, p1 plus a price of p2 for every unit of product purchased
6
Q
How does monopolist maximise profits using a two part tariff?
A
- Setting its per unit price (P2) equal to marginal cost
- Setting its lump sum fee (P1) equal to consumer surplus
7
Q
A
