Monopoly Flashcards
What are price makers?
Monopolies
In equilibrium, what do monopolies do?
Higher prices, less quantity
Compared to perfectly competitive market equilibrium
When MR = MC, is price >=<
Greater than with a monopoly
Where do you produce?
Where marginal revenue equals marginal cost
What are the two barriers to entry monopolies have going for them?
Legal and Natural Market Power barriers
What are legal barriers?
Licenses, copyrights, patents
What does natural market power entail?
Control of key resources
Economies of scale
Barriers to entry
Firms obtain market power through…
Barriers to entry they create
What are monopoly’s objective?
Max Profits = Revenue - Costs
What is the quantity effect?
A decrease in price leads to an increase in quantity (marginal revenue, to a threshold…)
Laffer Curve…
Price effect?
Decreased price leads to decreased revenue (increased quantity often doesn’t make up for the loss in price)
EFFECT ON CONSUMER DEMAND
The quantity of our demand curve is what our marginal revenue curve?
1/2
eg Demand: P = 10 - Q
MR: P = 10 - 2Q
Graph MC, MR, and the demand curve. Where is CS, Profit, and DWL?
Do this in your head; profit is most important
Q* P* …
What are the three types of price discrimination?
1st, 2nd, and 3rd
1st degree price discrimination?
Perfect
Very difficult to do in practice
Your profit is the area made between the y-axis, MR, and MC
