Unit three Flashcards
To sell more goods, a monopolist must
lower the price
A monopolist is a
price maker–put up barriers of entry
In the long run of a monopoly
NOTHING WILL HAPPEN
A monopoly’s demand curve is
down sloping
The quantity produced by a monopoly is determined by
the intersection of MR and MC
The price of a monopoly is determined by
the intersection of the quantity and the demand
How do we determine elasticity?
The marginal revenue intersects the x axis when it is unit elastic and to the right it is inelastic and to the left it is elastic
Allocative efficiency is found where
The graph is unit elastic
Socially optimal is when
p=mc
The result of perfect price discrimination is
Marginal revenue=demand
Regulation of a typical monopoly leads to
less monopoly profit but it is socially optimal
Regulation of a natural monopoly leads to
loss for the firm and ends up being a compromise with zero economic profit
Lump Sum
- Fixed costs
- If there is an increase in the lump sum, the ATC increases, the profit decreases and nothing else changes
Per unit
- Variable costs
- If there is an increase in per unit, the ATC, MC, and Price increase and output decreases
Three things necessary to price discriminate
1) Monopoly power (price setting)
2) Ability to separate people into groups
3) No resale
Characteristics of monopolistic competition
- relatively easy entry and exit
- advertising
- not the exact same product
Order of market structures from most firms to least
Perfect competition, monopolistic competition, oligopoly, monopoly
Monopolistic competition graph is
The same is PC graph
Firms have a dependent nature which gives incentive to
Collude and to cheat
Dominant strategy
No matter what the opponent does, one option is better
NASH equilibrium
When no player can independently make themselves better off
Herfindahl Index
A measure of the concentration and competitiveness of an industry. The sum of the squared percentage market shares of the individual firms in the industry.
As output increases, total fixed cost
stays the same
Relationship between MC and MP is
inverse
Only cost on a long run graph is
ATC
In Perfect Competition, if more firms enter then the output and price will
decrease for the typcial firm
What costs change the output?
Variable costs
Order of monopolies from the smallest to the greatest amount of consumer surplus
Price discriminant monopolist, single price monopoly, perfectly competitive monopoly
In a natural monopoly,
the long run ATC is still declining when it intersects demand
Price Leadership
Collusion when the “dominant firm” initiates the price
If a typical firm in monopolistic competition is making economic profits then in the long run,
demand will decrease
Which market structures have differentiated products?
Oligopoly and monopolistic competition
Which market structures have economic profit in the long run?
Oligopoly and monopoly
Which structures achieve productive efficiency in the long run?
Perfect Competition
Which structures have zero economic profit in the long run?
Perfect competition and monopolistic competition
Do ologopolists have incentive to change price?
No
Economies of Scale
The situation when the firm’s total cost of producing a product decreases in the long run as the firm increases the size of its plant and its output
Diseconomies of scale
The situation when a firm’s average total cost increases in the long run as the size of its plant and output increases
Shut down point
Minimum AVC
