Session 6: Price searchers, monopoly, and oligopoly

Question 1

What is market power?

Answer 1

Ability of sellers and buyers to affect prices

Question 2

What are the sources of market power?

Answer 2

Information asymmetry

Differentiated products

Legal barriers to entry

Natural barriers to entry by rivals

Question 3

When is profit maximized?

Answer 3

When MR = MC

Question 4

What is the formula for the Lerner Index of Market Power?

Answer 4

(P-MC)/P = - (1/Ed)

Question 5

If equilibrium output is when P > MC…

Answer 5

There is a loss of value

Question 6

What are government’s main approaches to social cost control?

Answer 6

Price regulation

Antitrust laws

Question 7

What is 1st degree price discrimination?

Answer 7

Charge each customer their reservation (max willingness to pay) price

Question 8

What is 2nd degree price discrimination?

Answer 8

Charge different prices per unit for different quantities of the same good

Question 9

What is 3rd degree price discrimination?

Answer 9

Divide customers into multiple groups with separate demand curves with own price