Econ Chp. 15

Front 1

table on page 337

Back 1

very important

Front 2

A monopolistic firm is a price _____

Back 2

maker

Front 3

Because monopoly firms are unchecked by competition they don't always provide the best outcome to society

Back 3

true

Front 4

The fundamental cause of a monopoly is______

Back 4

barriers to entry

a monopoly remains the only firm to sell bec. no competitors can enter the market to compete with it

Front 5

Barriers to entry have 3 main sources

Back 5

Monopoly resources: a key resource required for production is owned by a single firm

Government Regulation: The government gives a single firm the exclusive right to produce some good or service

The production process: A single firm can produce output at a lower cost than can a larger number of producers

Front 6

Natural Monopoly

Back 6

A monopoly that arises because a single firm can supply a good or service to an entire market at a smaller cost than could two or more firms

When a firm's average total cost curve continually declines

Front 7

Average Revenue always equals the price of the good?

Back 7

true!

Front 8

A monopolist's marginal revenue is always less than the price of its good

Back 8

true

Front 9

review page 316

Back 9

do it now

Front 10

Marginal Revenue is very different for monopolies. When a monopoly increases he amount it sells, this action has 2 effects on total revenue:

Back 10

The output effect: More output is sold, so Q is higher, which tends to increase total revenue

The price effect: The price falls, so P is lower, which tends to decrease total revenue

Front 11

Competitve firms have no price effect because they can sell all they want at the market price

Back 11

true

Front 12

Why is a monopoly's marginal revenue less than its price?

Back 12

when a monopoly increases production by 1 unit, it must reduce the price it charges for every unit it sells, and this cut in price reduces revenue on the units it was already selling

Front 13

For a monopoly the Marginal revenue curve lies below the Demand curve (average Rev curve)

Back 13

true

Front 14

The monopolist profit maximizing quantity of output is determined by the intersection of what 2 curves?

Back 14

Marginal revenue curve & the marginal cost curve

rvw page 319

Front 15

Explain the difference between a competitive firms MR and a monopoly's MR curve

Back 15

The MR of a competitve firm equals its price, whereas the marginal revenue of a monopoly is less than its price.

Competitive firms P=MR=MC

Monopoly P > MR = MC

Front 16

IN competitive markets, price EQUALS marginal cost.

In monopolized markets, price EXCEEDS marginal cost

Back 16

true

Front 17

Compare pg 321 & 294

Back 17

True!

Front 18

The equality of marginal revenue and marginal cost a the profit maximizing quantity is the same for both types of firms. What differs is the relationship of the price to marginal revenue and marginal cost

Back 18

after the monopoly firm chooses teh quantity of output that equates marginal revenue and marginal cost, it uses the demand curve to find the highest price it can charge and sell that quantity

Front 19

How do you graphically calculate a monopoly's profit?

Back 19

(Monopoly price - monopoly ATC) X Quantity where marginal cost = marginal revenue

Front 20

The socially efficient quantity is found where the demand curve and the marginal cost curve intersect

Back 20

true

Front 21

The monopolist chooses to produce and sell the quantity where ____ = _____

The benevolent social planner would choose the quantity where ___ = ____

Back 21

Marginal Revenue = Marginal cost


Demand = Marginal Cost


As a result of this the monopoly produces LESS than the socially desirable quantity of output (DWL arises see pg 324)

Front 22

The deadweight loss caused by a monopoly is similar to the deadweight loss caused by a tax the difference is

Back 22

The government collects the Tax revenue while the private firm gets the monopoly profit

Front 23

Monopoly profit is not a social problem

Back 23

bc it doesn't decrease the size of the economic pie it just transfers more of the existing pie (TS) to the producers

Front 24

THe problem in a monpolized marekt arises because the firm produces and sells a quantity of outptu below the level that maximizes total surplus

Back 24

true

The DWL measures how much teh economic pie shrinks as a result

The inefficiency is connect to the monopoly's high price. Consumers buy fewer units when the firm raises its price above its marginal cost. But keep in mind that the profit earned on teh units that contiue to be sold is NOT the problem. The problem setms from the inefficiently low quantity of output. Put differently the high monopoly price did not discourage some consumers from buying the good, it would raise producer surplus by exactly the amount it reduced consumer surpulus, leaving total surplus the same as could be achieved by a benevolent social planner.

Front 25

Price Discrimination

Back 25

The business practice of selling the same good at different prices to different customers

Front 26

3 lessons to be learned about price discrimination

Back 26

1. it is a rational strategy for a profit maximizing monopolist.

2. it requires the ability to separate customers according to their willingess to pay (certain market forces can prevent firms from price discriminating however, like arbitrage (the process of buying a good in one market at a low price and selling it in another marekt at a higher price))

3. It can raise economic welfare. (those who value it more pay more those who value it less pay less and the firm gets increased profit. everyone wins)

Price Discrimination in some cases can eliminate the inefficiency inherent in monopoly pricing

Front 27

If a firm has a downward sloping demand curve that implies that it has some form of market power

Back 27

true