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32 Cards in this Set
- Front
- Back
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monopoly |
market structure in which one firm makes up entire market |
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characteristics of a monopoly |
-faces no competitive pressure from other firms -exist because of barriers to entry into a market that prevent competition -monopolists make sure that monopolists benefit, not consumers |
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marginal revenue |
change in total revenue associated with the change in quantity |
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EXAMPLE #1 |
output: 4___5 price: $24___$21 revenue: $96___$105 marginal revenue: $9 $21 gain from selling 5th unit $12 decline because $$ lowered on 4 units for $3 a unit |
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monopolists marginal revenue... |
is always below price |
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when marginal cost > marginal revenue.... |
increasing production will reduce total profit |
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MR=MC |
determines profit maximizing output monopolists will change max price consumers will pay for that quantity |
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MR>MC |
monopolists gains profit by increasing output |
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MR |
monopolists gains profit by decreasing output |
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first step to finding price and profit graphically |
1. draw marginal revenue curve |
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second step to finding price and profit graphically |
3. determine price monopolists will charge: extend line where MR=MC up to demand curve where |
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third step to finding price and profit graphically |
3. determine price monopolists will charge: extend line where MR=MC up to demand curve where
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fourth step to finding price and profit graphically |
determine profit: subtract ATC from price at profit maximizing level of output to get profit per unit. multiply profit per unit by quantity of output to get total profit |
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welfare loss from monopoly |
monopolies charge price higher than MC people consume less of monopolists output and more of some other output than they would if markets were competitive |
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marginal cost of increasing output is... |
lower than marginal benefit of increasing output |
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price discrimination |
charge different prices to different individuals or groups of individuals eliminates welfare loss |
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characteristics of price discriminating |
-charges individuals high up on the demand curve higher prices and low on the demand curve lower prices -could charge consumers with inelastic demands higher prices and those with elastic demands lower prices |
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barriers to entry |
if there were on barriers to entry, profit maximizing firms would always compete away monopoly profits |
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natural ability |
a firm that is better at producing a good than anyone else |
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economies of scale cause natural monopolies |
a single firm can produce at a lower cost then 2 or more firms |
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when do natural monopolies occur? |
occurs when the technology is such that indivisible costs are so large that ATC fall within the range of possible outputs |
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3 different barriers to entry |
natural ability economies of scale government created monopolies |
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monopolistic competition |
market structure in which there are many firms selling differentiated products and few barriers to entry |
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four different characteristics of monopolistic competition |
many sellers product differentiation multiple dimensions of competition easy entry of new firms in the long run |
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many sellers |
firms don't take into account rival sellers reaction |
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product differentiation |
each of the many brands vary slightly |
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multiple dimensions of competition |
competition takes many forms such as; product differentiation, advertising, service and distribution outlets |
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easy entry of new firms in the long-run |
no significant entry barriers |
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shape of monopolistic competitor demand curve |
downward sloping |
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perfect competitor in long run equilibrium produces at... |
point where MC=P=ATC marginal cost=profit=average total cost |
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where MC=P=ATC, ATC is.... |
`ATC is at a minimum |
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for a monopolistic competitor in a long-run equilibrium, |
(P=ATC) > (MC=MR) profit equaling average total cost is greater than marginal cost equaling marginal revenue |
