Micro Econ 202, Chapter 15

Front 1

Monopoly

1. Unlike a competitive firm who is a price taker, a monopoly firm is a _____.
2. A monopoly charges a price that exceeds _______.
3. Since a monopoly firm can control the price of the good it sells, why is it that monopoly's profits are not unlimited?
4. Like competitive firms, monopoly firms aim to ______.
5. Because mops are unchecked by competition, the outcome in a market with a mop is often...
6. What do mops have the competitive firms do not?

Back 1

1. price maker
2. marginal cost
3. Because when a monopoly charges a higher price for its good, less people buy it.
4. Maximize profits
5. not in the best interest of society
6. Market power

Front 2

Why Monopolies Arise

1. A firm is a mop if?
2. What is the fundamental cause of mop? What are the three main sources of that cause?

Back 2

.1 It is the sole seller of its product and if its product does not have close substitutions.
2. Barries to Entry; a. Monopoly resources, b. Government regulation, c. The production process

Front 3

Monopoly Resources

1. How does a mop resources arise?
2. A single firm owning a key resource is...
3. How often do mops created from exclusive ownership of a key resource arise? Why is this?

Back 3

1. When a key resource required for production is owned by a single firm
2. the simplest way for a mop to arise
3. Rarely, because the natural scope of their markets is worldwide.

Front 4

Government-Created Monopolies

1. How do government-created mops arise?
2. What are two important examples of this kind of mop?
3. What are the benefits and costs of these types of mops?

Back 4

1. When the government has given one person or firm the exclusive right to sell some good or service.
2. The patent and copyright laws.
3. It increases incentives for creative activity but it also allows for prices to be higher than they should be.

Front 5

Natural Monopolies

1. When is an industry a natural mop?
2. How does a natural mop arise?
3. As a market expands, a natural mop can expand into what?

Back 5

1. When a single firm can supply a good or service to an entire market at a lower cost than could two or more firms.
2. When there are economies of scale over the relevant range of output.
3. A more competitive market

Front 6

Monopoly Versus Competition

1. The key difference between mops and competitive firms is what?
2. How can a mop alter the price of its good?
3. A mops demand curve is the ______. Which way does it slope?
4. What happens when a mop raises its price on their good? When the mop produces and supplies less of it?
5. What provides a constraint on a mops ability to profit from its market power? What does it make impossible for mops to do?
6. Can a mop choose a point off the demand curve?

Back 6

1. The mops ability to influence the price of its output.
2. By adjusting the quantity it supplies to the market
3. Market demand curve; it slopes downward
4. When mops raise prices the amount that is sold decreases. When mops produce and supply less of their good the price rises.
5. The demand curve. It makes it impossible for a mop to charge a high price and sell a high quantity at the same time.
6. No

Front 7

A Monopoly's Revenue

1. Like competitive firms, a mops Average Revenue (AR) is always equal to the _____.
2. A mops marginal revenue (MR) is always _____. Why is this?
3. What are the two effects on total revenue that happen when a mop increases the amount it sells? Explain each.
4. Because the mops price (P) equals its _______, the demand curve is also the ________.
5. Because the marginal revenue equals the price of the first unit sold, what effect does it create on a graph?
6. A mops MR curve always lies where?
7. Can a mops marginal revenue be negative? Explain.

Back 7

1. price
2. less than the price of its good; This is because a mops demand curve is downward sloping.
3. a* The Output Effect: More output is sold, so Q is higher, which tends to increase total revenue. b* The Price Effect: The price falls, so P is lower, which tends to decrease total revenue.
4. average revenue (AR); average revenue curve
5. The MR curve and the Demand curve always start at the same spot on the vertical axis.
6. Below the demand curve after their same starting point on the vertical axis.
7. Yes it can, it happens when the price effect of revenue is greater than the output effect. This can create a scenario at a certain point that despite selling an additional unit the total revenue actual decreases.

Front 8

Profit Maximization

1. What should a mop do when its MC<MR? What if its MC>MR?
2. What determines a mops profit-maximizing quantity of output?
3. How does a mop find its profit-maximizing price for its product?

Back 8

1. If MC<MR the mop should produce more units because it will raise their profits; If MC>MR they will raise their profits by reducing production.
2. The intersection of the MR Curve and the MC Curve, the same intersection determines Qmax for competitive firms too.
3. It uses the demand curve to find the highest amount that it can charge for their product at the Qmax.

Front 9

A Monopoly's Profit

1. What is the formula to find a mops profit?

Back 9

1. Profit = (P-ATC) x Q, the same formula used to find a competitive firms profit.

Front 10

The Welfare Cost of Monopolies

1. What is Total Surplus? What is the formula for it?
2. What is Producer Surplus?
3. What is Consumer Surplus?
4. Is a mop better for the economic well being of society more so than a competitive market?

Back 10

1. Total surplus measures the economic well-being of buyers and sellers in a market. It is the sum of consumer surplus and producer surplus.
2. Producer surplus is the amount producers receive for a good minus their costs for producing it.
3. Consumer surplus is consumers' willingness to pay for a good minus the amount they actually pay for it.
4. No, the outcome of a competitive market is a natural one and a more desirable one.

Front 11

The Deadweight Loss

1. Demand Curve reflects what? MC curve?
2. Where is the Socially Efficient Quantity found?
3. At this^ point, decreasing output would do what?
4. At an optimal quantity, the value of an extra unit to consumers is what?
5. Mops produce _____ than the socially efficient quantity of output.
6. A deadweight loss triangle can measure the ______ of monopoly.
7. How is a monopoly's deadweight loss similar to the one caused by taxes?

Back 11

1. Demand curve reflects the value of the good to the buyer; MC curve reflects the cost of the mops.
2. Where Demand Curve and MC Curve intersect.
3. Raise total surplus
4. Exactly equal to the marginal cost of production.
5. less
6. inefficiency
7. A tax places a wedge between consumers willingness to pay and producers costs. Because a monopoly exerts its market power by changing a price above market cost, it places a similar wedge

Front 12

The Monopoly's Profit: A Social Cost?

1. The mops profit is not a social problem, but why does a problem arise in a monopolized market?

Back 12

1. The problem arises because the mop produces and sells a quantity of output below the level that maximizes total surplus. The deadweight loss measures how much this economic pie shrinks as a result.

Front 13

A Parable About Pricing

1. What is Price Discrimination?
2. Where is Price Discrimination not possible? Why?
3. Price discrimination is a _______ strategy to a profit-maximizing monopolist.
4. What does price discrimination require?
5. What is arbitrage?
6. Does price discrimination raise economic welfare?
7. What is Perfect Price Discrimination?
8. What is Imperfect Price Discrimination and how does it affect economic welfare?

Back 13

1. When a mop sells the same product at a different price to different customers, even though the production costs were the same.
2. In a competitive market, because for a firm to price discriminate it must have some market power.
3. rational
4. The ability to separate customers according to their willingness to buy.
5. A market force that prevents price discrimination, its when someone bought the cheaper version and sold it for profit where they sell the more expensive version.
6. Yes, because it cuts down the deadweight loss.
7. When the mop sells his product to each buyer for the exact amount of the buyers willingness to pay. This is impossible to do.
8. Imperfect Price Discrimination is what firms use, they do it by age, weekday/end, country, etc. Its quite complicated to figure out how it affects economic welfare and there is no general answer. The only certainty is that price discrimination raises the mops profit, or else they wouldnt do it.