unit 9 for economic test Flashcards
in question on monopolies etc. remember MR=MC, also in firm supply than p=MC
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a market that is a monopoly has a single seller
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how can a monopolist adjust the market price
by adjusting its output level
at profit maximising output level. marginal revenue is equal to marginal cost
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practice example question on if the market demand becomes less sensitive in Econ December notes
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when is a market Pareto efficient
if it achieves the maximum possible total gains to trade. Otherwise a market is pareto inefficient
what is a natural monopoly
A natural monopoly arises when the firm’s technology has economies of scale large enough for it to supply the whole market at a lower average total production cost than is possible with more than one firm in the market.
how does a natural monopoly deter entry
A natural monopoly deters entry by threatening predatory pricing against an entrant.
what is a predatory price
A predatory price is a low price set by the incumbent firm when an entrant appears, causing the entrant’s economic profits to be negative and inducing its exit.
Like any profit-maximizing monopolist, the natural monopolist causes a deadweight loss.
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three types of price discrimination:
define:
first degree price discrimination
second degree price discrimination
third degree price discrimination
First-degree: Each output unit is sold at a different price. Prices may differ across buyers.
Second-degree: The price paid by a buyer can vary with the quantity demanded by the buyer. But all customers face the same price schedule, for example, bulk-buying discounts.
Third-degree: Price paid by buyers in a given group is the same for all units purchased. But prices may differ across buyer groups, for example, senior citizen and student discounts.
command f for markets 1 and 2 and do the question in Econ December notes
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what is bundling
Bundling is the packaging of related goods together, for example the bundling of software or magazines
what is a two part tariff
what is the largest p1 can be
it is a lump sum fee p1, plus a price p2 for each unit of product purchased.
thus the price of buying x units of product is = p1 + p2x
p1 is the market entrance fee, so the largest it can be is the surplus the buyer gains from entering the market
set p1=cs, and now what should p2 be
- p2 should be set equal to the marginal cost (p2=mc)
do question on block pricing in Econ December notes now
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how do you find consumer surplus
(monopoly quantity) x ( p intercept where q=0 minus monopoly price) x 1/2
how do you find producer surplus and where is it on the diagram
Total revenue minus the total cost apparently
how do you find deadweight loss and where is it on a diagram
( new price minus old price) x (original quantity minus new quantity) x1/2.
below market price and above supply curve
