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econ 101 official > Part 3 > Flashcards

Part 3 Flashcards

1
Q

When does a pure monopoly exist (3)

A
  1. There is one seller in the market with no close substitutes for this good or service
  2. Seller has considerable control over price, (monopolist is a price maker/price searcher).
  3. Barriers to entry to protect monopolist from potential competitors
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2
Q

Entry to Barriers in Monopoly (5)

A

1.. Economies of Scale

  1. Patents and Copyright
  2. Exclusive Control over a necessary Input
  3. Public Franchises
  4. Firm creating Strategic Barriers
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3
Q

Economies of Scale Monopoly

A

large firm has lower cost per unit leading to a natural monopoly

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4
Q

Patents and Copyright Monopoly

A

-Legal barriers created by governments

Patents: initial developer has complete control over the duration of the patents
-In Canada patent lasts 20 years
-patents are rewards for innovation
-Patents require the release of the complete disclosure of ingredients

Copyrights: Intellectual property like books

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5
Q

Public Franchies Monopoly

A

the government giving exclusive control to a single firm such as the Hudson’s bay company

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6
Q

In a monopoly, price is always greater than _________

A

Marginal Revenue

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7
Q

How to maximize profits in a monopoly

A
  1. Find where MR = MC, then go up until you intersect demand curve.
  2. If AVC > Price, then profits are -FC
  3. If not, then find ATC and calculate profits
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8
Q

How to maximize revenues in monopoly (Perfect Competition?)

A

Use the price at which MC intersects Price,

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9
Q

Monopoly Demand / MR curves

A
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10
Q

Where to charge price for profit maximization in a monopoly

A
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11
Q

Where to charge price for revenue maximization in a monopoly

A
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12
Q

Consumer Surplus Monopoly

A
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13
Q

Producer Surplus Monopoly

A
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14
Q

Deadweight Loss Monopoly

A
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15
Q

Consumer Surplus Monopoly PC (Socially Efficient)

A
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16
Q

Producer Surplus Monopoly PC (Socially Efficient)

A
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17
Q

Is there deadweight loss in monopoly when you produce to maximize revenues (Socially Efficient) ?

A

No

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18
Q

What Is the socially efficient level to charge at in a monopoly?

A

Where marginal cost intersects price (PC)

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19
Q

3 Economic Wastes of a Monopoly

A
  1. Deadweight Loss
  2. X-inefficiency
  3. Rent-Seeking
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20
Q

Deadweight Loss Inefficiency in. Monopolies

A

Caused by charging a price higher than the competitive price, and producing less than the socially efficient level

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21
Q

X-Inefficiency in monopolies

A

-monopolist is wasteful because there is no competition to keep them efficient

-ATC may be higher than lowest possible cost

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22
Q

Rent Seeking Inefficiency in monopolies

A

-the profit the monopolists are making attracts other firms to the industry

-monopolists spend part of profit to prevent entrants from entering the industry

-entransts spend resources trying to enter profit box

-this results in waste

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23
Q

Two ways to regulate monopolies

A
  1. Control Behaviour (Competition Act). Prohibit predatory pricing
  2. Regulate Price
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24
Q

Regulating the Price in a monopoly

A

Best Case solution: charge where MC = Price, so DWL = 0

issue: regulator does not know MC, and that it could lead to negative profits

Second Best Solution:

Force monopolist to charge where demand meets ATC, resulting in 0 profit but less deadweight loss????

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25
Q

What are the three types of price discrimination?

A
  1. First Degree
  2. Second Degree
  3. Third Degree
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26
Q

Price Discrimination

A

Charging different prices not explained by differences in marginal cost

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27
Q

First Degree Price Discrimination

A

-Charge each consumer different price

-Also called perfect price discrimination

-No consumer surplus

28
Q

Second Degree Price Discrimination

A

-Menu pricing/block pricing

-Charge based on quantity bought, more bough gives a better price

-Used when companies can not differentiate between their customers

29
Q

Third Degree Price Discrimination

A

-Group Pricing

-Charge a different price for groups of consumers with different income elasticities

30
Q

What is the point of price discrimination

A

to maximize profits

31
Q

Necessary Conditions for Price Discrimination (3)

A
  1. Firms must have some power over price
  2. Firms must be able to identify different consumer groups
  3. Firms must be able to prevent arbitrage
32
Q

Arbitrage

A

Buying at a low price and re-selling at a high price

33
Q

Monopolistic Competition Characteristics (3)

A
  1. Many Firms
  2. Easy entry/exit
  3. Firms compete by selling similar but differentiated products
34
Q

Product Differentiation Factors (4)

A
  1. Product Attributes - ex: attributes
  2. Service
  3. Location
  4. Brand Names/Packaging
35
Q

Do individual firms or market firms face more elastic demand curves?

A

individual firms

36
Q

How is monopolistic competition different than monopoly?

A

firms can enter and exit

37
Q

Monopolistic Competition Profit in the short run

A

Same as monopoly profits in the short run

38
Q

Monopolistic Competition Long run

A

Same as short run, excpect if profits are above 0, firms will enter and demand curve will shift down unti
P = ATC, and profits = 0.

-Marginal Revenue = Marginal Cost

  • Price = ATC

-Price > Marginal Cost

39
Q
A
40
Q
A
41
Q

is perfect competition or monopolistic competition more expensive for the consumer? Which one do they prefer and why?

A

Monopolistic is more expensive. They prefer it because it allows for more variety of product s

42
Q

Hoteling’s Boardwalk is an example of _____________

A

causing an inefficiency due to increase competition

43
Q

Characteristics of an Oligopoly (3)

A
  1. Marked dominated by a small amount of firms
  2. Some entry barriers
  3. Firms are mutually interdependent (mindful of rivals response to deicsisions)
44
Q

Basic Dilemma of Oligopoly

A

-firms know that they as a group will make more profits if they act as a cartel

-they also know a single firm can earn more by cheating on the cartel

45
Q

Nash Equillibrium

A

When the best strategy is to maintain a dominant behaivour

ie: if one does marketing, i do marketing, if the other does not do marketing, i still do marketing.

46
Q

Is there always a dominant strategy?

A

No

47
Q

Will firms collude or compete?

A

Compete, because if there is a trigger it tis more stable. Collusion can ideally be better, but does not end up working out that way

48
Q

Incentives to compete instead of colluding factors? (6)

A
  1. Tendency to cooperate is greater for small number of sellers rather than larger number
  2. Tendency to cooperate is greater for producers of similar products than for producers of sharply different products
  3. Tendency to cooperate is greater in growing market than contracting market
  4. Tendency to cooperate is greater when industry contains a dominant firm rather than an equal number of competitiors
  5. Tendency to cooperate is greater when non-price rivalry is absent or limited
  6. Tendency to cooperate is greater when barriers to entry of new firms are greater
49
Q

Four firm concentration ratio

A

-if the 4 largest firms have a higher percentages of all sales indicates low degree of competitiveness.

-if the 4 largest firms have a low degree of all sales, indicates high competitiveness

50
Q

HHI Index =

*and how to know if something is moderatley or highly concentrated

A

( (sales of firm 1/market sales) x 100 ) ^2 + etc….

if the HHI > 1800 = highly concentrated

if HHI between 1000, 18000 it is moderatley concentrated

51
Q

In sequential games always one player _________

A

chooses first

52
Q

Factors in Factor Market (4)

A

Land, labour, capital, entrepreneurship

53
Q

How is a firms demand for a factor determined?

A

Based of the demand for the good/service produced using that factor

54
Q

Marginal Product equation

A

Change in Quantity / Change in Labour

55
Q

What does Marginal Revenue Product measure?

A

The change in the total revenue resulting from an increase in the use of an input

56
Q

Marginal Revenue Product Equation

A

Change In Revenue / Change in Labour

57
Q

In general what does Marginal Revenue of Product equal?

A

Marginal Product * Marginal Revenue

58
Q

In perfect competition, what does Marginal Revenue of Product equal?

A

Marginal Product * Price of Product

59
Q

Marginal Factor Cost

A

Change in total costs resulting from the use of an input

60
Q

Marginal Factor Cost Equation

A

Change in Cost / Change in Labour

61
Q

The hiring rule

A

A firm should continue to hire until Marginal Factor Cost = Marginal Revenue Product

62
Q

Factor Markets, X, Y axis

A

X ——> quantity of factor

Y ——–> price of factor

63
Q

What is this called?

A

The demand curve for labour?

64
Q

What can shift the demand curve for labour (3):

A
  1. Increase in product price
  2. Productivity/Tech
  3. Prices of Other inputs
65
Q

if two groups have the same MRP, but one is at a lower wage, which one will they choose?

A

the one at the lower wage

66
Q

Why do we see wage differences between women and men (3)?

A
  1. Women tend to work in lower pay occupations
    (about 50% of the reason)
  2. Other issues like work experience (about 12% of the reason)
  3. Gender Discrimination
    (about 38% of the reason)

econ 101 official (4 decks)

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