Wk 2 - Monopolies Flashcards
Why do Monopolies Arise
Increasing returns to scale create a Natural monopoly
Why is MR < P for a monopolist
How do Monopolies choose their P & Q
How can you tax and regulate a monopolist
What is price discrimination
What are the Rules for profit max in a Monopoly
The marginal output rule
The Shut down rule
What is the marginal output rule
The monopolist will choose the output level where MC = MR
What is the shut down rule
The firm must compare its AR with its AC
If D=AR is entirely below the AC curve, the firm should shut down
What are the key characteristics of a monopoly
- One seller
- Differentiated Products
- Price Maker
- High barriers to entry
- Imperfect Information
- Firm is a Profit Maximiser
What are the Assumptions for a Monopoly
They are not allocatively efficient
Produtive efficiency
X-Efficiency
Dynamic Efficiency
Explain why are firms not allocatively efficient
Allocative efficiency occurs at P=MC
(Where MC intersects the demand curve)
- basic monopoly diagram shows they dont
= lower output , less choice , lower quality
Explain why monopolies are not productively efficient
Productive efficiency occurs at the lowest point on the AC curve. (Take full advantage of EoS)
Often operate somewhere to the left (forego EoS, or to the right = diseconomies os scale)
