monopoly Flashcards
what is a monopoly
its when a single firm provides all the output for a industry
key features of a monopoly
the good has no close substitutes
monopolists enjoy the market power
how do monopoly happen
when there is a barrier of entry that is very large
how does a monopoly maximize profit
like every other firm when marginal revenue is equal to the marginal cost profit is maximized
what causes a monopoly
large barriers to entry, control of a recource, increase returns to scale, better tech then others, network externalities, government barriers
what is increasing returns to scale
when the average total cost ( ATC) falls as the output increases
what is network externality
its when the value of a good increases ad more people use that good ie ( the network of that good grows mainly tech companies like Facebook)
what is a government created barrier
a patient is a government created barrier as it makes it so who ever was the person who invented the good is the the only person that can make or sell that good so it gives incentive for people to innovate and not just copy
what type of firm can control the price and what type of firm can’t
monopolistic firms can control the price but competitive firms cannot control the price
how to find marginal revenue
change in total revenue / change in quantity
why would a monopoly target a group with a lower price elasticity to demand
because when a consumer is more elastic that means they will change there demand a lot if the price changes but the more inelastic the consumer is that means the consumer won’t change its quantity that much if the price changes
what is price discrimination and what are the different ways firms do this
when a firm will charge each customer a different price Volume discounts sales and outlet stores
