Monopoly Flashcards
Monopoly
One firm in the market
Price maker
Monopoly output is market output
Monopoly demand curve is market demand curve
Profit Max - MR = MC
MR & MC
Profit
TR - TC
Proft max condition
Product rule
Elasticity of demand
MR in terms of elasticity
MR> 0 demand is…
MR<0 demand is
MR>0 elastic
MR<0 inelastic
Lerner index
index of firm market power. Another way to examine how elasticity affects a monopoly price relative to its MC
Competitive and market power Lerner index
0 for competitive and 1 for market power
Elasticity of demand becomes more elastic if
better substitutes
more firms selling similar products
Welfare max
P=MC where profit = 0
Tax incidence (change in consumers price / change in tax) can exceed 100% in monopoly but not competitive market
raises more revenue using ad galore in monopoly but no difference to competitive market
Cost advantages of monopoly
Control of an essential facility - scarce resource that a rival firm needs to use to survive
Superior technology
Protection from imitation - through patents
Natural monopoly
one firm can produce total output of the market at a lower cost than several firms could
Gvt actions that create a monopoly
License to operate
Rights to be a monopoly
Auctioning
Gvt actions that reduce market power
Optimal price regulation
Non optimal price regulation
Increasing competition
