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18 Cards in this Set

  • Front
  • Back
Why did Monopolies
1 A key resource is owned by a single firm
2 The government gives a single firm the exclusive right to produce some good
3 THe costs of production make a single producer more efficient than a large number of producers.
When it sells an additional unit in monopoly, the sale of the additional unit has two effects on total revenue (PXQ)
The two effects are: the output effect, and the pirce effect
What happen to the marginal revenue as Q increases?
It declines as Q increases and marginal revenue is always less than the price of the good.
What is the difference between competitive market and monopolistic market in the sense of price and marginal cost?
In competitive market, price equals marginal cost while in monopolized markets, price exceeds marginal cost.
What does it mean to produce socially efficiently?
to maximize total surplus by producing all units where the value to buyers exceeds or equals the cost of production.
why does monopolist produce less than the socially efficient quantity of output?
so they ccan charge a price that exceeds the marginal cost of production.
What is one way public policy handles monopolies?
by trying to make monopolized industries more competitive. But hard to know which one to block and which one to allow ex: antitrust laws
What is another public policy that handles this?
By regulating the behavior of the monopolies. not as efficient as marginal cost pricing.
Another policy that deals monopolies would be?
By turning some private monopolies into public enterprises.
What is another policy available?
By doing nothing at all. Because "political failure" in real world more costly than "market failure"
What is price discrimination?
business practice of selling the same good at different price to different customers. can only be practiced by monopolies.
What are the three lessons of price discrimination?
1. monopolist's profits are increased when it charges each customer a price closer to his or her individual willingness to pay.
2. It is only possible when you can separate customers according to their willingness to pay.
3. raise economic welfare because output increases beyond that which would result under monopoly pricing. The producers received additional surplus, however.
What are some examples of price discriminations?
movie tickets, airline tickets, discount coupons, financial aid college tuition.
What is one limitations of monopolies?
monopolist cannot choose both high price and large quantity if there is no such demand.
What is the uncertainties associated with monopolies?
not guaranteed to earn profit, that goes for patents too.
How does oligopoly differ from competition?
competitive market-decision of one firm have no impact on the other firms in the market while in oligopoly, decision firms made affect each other.
What are three examples of prisnor's dilemma?
Arms race, advertising, common resources.
What are some of the disagreements over the use of antitrust laws against practices like price fixing?
Resale price maintenance, predatory pricing, and tying