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16 Cards in this Set
- Front
- Back
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Perfect vs Imperfect |
Perfect => MR = P = MC Imperfect => P>MR=MC. perfect except for 1 (+) 1. con/sup not P takers 2. g's not homogenous 3. are externalities 4. all info not available 5. g's are not rival or excludable 6. no free entry/exit |
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Market power |
ability to set own $ |
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Monopoly |
one firm in the market t/f its D curve is the same as market's D curve e.g. Microsoft, Aus post |
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Monopolistic |
large # firms, producing slightly differentiated products.e.g. restaurants, petrol stations. |
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Oligopolistic |
small # of firms that sell g's that are close substitutes. e.g. media outlet, grocery, banking |
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Barriers to entry/exit |
1. control over scare resources 2. gov created => patents, copyrights, licenses 3. ^ing returns to scale (IRS) - ATC <es with amt produced 4. Network economies |
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Natural Monopoly |
Result of IRS.e.g. public utilities - water, electricity => require expensive infrastructure |
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Perfectly comp & monopoly D curves |
Perf = HORIZONTAL D CURVE (perfectly elastic). MR = P = constant Monopoly = DOWNWARD SLOPING. need to <Q in order to ^$. MC = constant. ATC = <ing |
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# units that max monopolist's profit |
expand pro until MR = MC |
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Socially optimum level of pro? |
MB = MC |
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What causes conflict b/t socially optimum level and monopolist max profit? |
To ^ Q sold need to < P => affects all units sold => EQ level lower than socially opt one. Q* mon < Q*soc INVISIABLE HAND PRINCIPLE DOES NOT APPLY |
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Gov regulation in monopoly |
1. Competition law => not efficient for natural monopolies 2. Average Cost Pricing => set $ & Q at intersection of ATC & D curve. |
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Why is ACP hard to implement? |
1. Gov does not know ATC t/f must est 2. no incentive for firms to invest in tech to < pro costs 3. output will be allocatively inefficient => $ > MC. Could set P ceiling = MC but may lead to -ve profit |
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1st degree $ discriminaiton |
monopolist knows reservation P of each con & is able to charge each con his MB (or reservation P). Leads to selling the socially optimum Q. |
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2nd degree $ discrimination |
charge different $ depending on the Q/ quality D'ed by each consumer (bulk, eco/bus airfare) |
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3rd degree $ discrimination |
charge different $ depending in observable con's attributes (location, age) |
