Econ Test 4 (Nov 27 2012)

Front 1

Monopoly

Back 1

Assumptions:
1. There is only one firm that firm is the industry so they have complete control over the price they charge.
2. They produce a product with no close substitutes. If you want the product you must buy if from the monopolist
3. Very high barriers to entry. Firms in the market don't allow others to enter but other firms can leave the market
-Firms are called "price searchers"

Front 2

Allocative Efficiency

Back 2

IN a perfectly competitive market structure a firm will produce a socially optimal level of output where marginal cost equal marginal benefits

Front 3

Legal Barriers to Entry

Back 3

Government actions restrict entry into the market

Front 4

Public Franchise

Back 4

A type of legal barrier: A firm or industry in government granted right to produce and sell a particular good

Front 5

Government Licenses

Back 5

A type of legal barrier: A government granted right to practice in a particular industry or occupation ( Patents, Copyrights, Trademarks)

Front 6

Types of Barriers to Entry

Back 6

Legal
Natural
Create own

Front 7

Natural Barriers to Entry

Back 7

This exist because of the relationship between the demand and its cost structure where it only makes sense for one firm to exist

Front 8

Create own Barriers to Entry

Back 8

A firm a quires significant portion of a key resource in the production process this restricts others from buying that input and producing the product

Front 9

Price Discrimination

Back 9

Practice of one buyer or a group of buyers charges different prices when there is no cost difference in supply to the different groups
1. There must be some degree of monopoly power present
2. The buyers must be able to be separated based on their elasticity of demand
3. Prevent arbitrage

Front 10

1st Degree PD

Back 10

Charging the most the consumer is willing to pay for each item purchased
Eliminates cs and turns it into monopoly profit
Ex. Auction Markets

Front 11

2nd Degree PD

Back 11

Charges the same customer different prices for the same items
Ex. Coupons & 2 for 1 specials

Front 12

3rd Degree PD

Back 12

Charges different prices in different Markets
Ex. Senior Citizen Discounts , Ladies night

Front 13

Dynamic Efficiency (Good View)

Back 13

Monopolies may overtime be more innovative at producing new products or production techniques than competitive firms because monopolies create an incentive for innovation

Front 14

State Inefficiency ( Bad View)

Back 14

Monopolies tend to produce less and charge a higher price than competitive firms
They create a welfare loss due to the presence of a monopolies

Front 15

Monopolistic Competition

Back 15

Assumptions:
1. There is a relatively large number of sellers in the market. Collusion between sellers highly unlikely because it would be to costly. Sellers pay attention to average market price, not the price of any one competitor
2. They sell a slightly differentiated product. (Heterogenous) These products are different by quantity, location, brand name, services and design, ect. Advertising is a necessary and relevant expenditure in this market
3. They use non-price competition to compete based on quality location service, brand name ect.
4. Open market ( No barriers to entry or exit)

Front 16

Advertising Pros

Back 16

Can be informative
Reduce search cost to consumer
Increase sales to take advantage of economies of scale

Front 17

Advertising Cons

Back 17

Can be persuasive
It can be a waste of resources
It increases cost of production and price of the product to the consumer

Front 18

Oligopolies

Back 18

Assumptions :
1. There are only a few firms that produce in the industry. They are more likely to act callously to allow there decisions to impact one another. Firms have considerable control over price an their decision will impact the decisions of the other firms
2. They can either produce a heterogenous or homogenous product it depends on the type of oligopoly market structure
3. The entry of new firms is difficult or even prevented by the entry of new firms into the market. These barriers can be natural or artificial in nature

Front 19

Mutual interdependance

Back 19

A situation where one person or firms decisions will impact another person or firm. Only occurs in oligopolies

Front 20

Cartels

Back 20

A formula alliance among firms to reduce competition (reduce output or input prices) in order to increase profit
Can only exist in oligopolies
They can be legal or illegal in nature
Always an incentive to cheat