unit 9 for economic test Flashcards
in question on monopolies etc. remember MR=MC, also in firm supply than p=MC
.
a market that is a monopoly has a single seller
.
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
.
practice example question on if the market demand becomes less sensitive in Econ December notes
.
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.
.
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
.
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
.
