Final - Monopoly

Question 1

Monopoly

Answer 1

Market where a single firm produces a good or service with no close substitutes

–> has market power, sets prices

Question 2

Some producers, both no and yes differentiated products?

Answer 2

Oligopoly

Question 3

Many producers, no diferentiated products?

Answer 3

Perfect competition

Question 4

Many producers, diferentiated products?

Answer 4

Monopolistic competition

Question 5

Reasons for monopolies (2)

Answer 5

• Firm producers goods/services with no close substitutes
• A barrier prevents other firms from joining the market

Question 6

Barriers to entry (5)

Answer 6

1. Control of scarce resources or goods
2. Increasing returns to scale
3. Technological superiority
4. Network Externalities
5. Government imposed barriers

Question 7

Examples of gov imposed barriers

Answer 7

• Patents
• copyrights

Question 8

what does increasing returns to scale mean?

Answer 8

• Firms with larger volumes have advantages since they get to spread out their fixed costs
• so its easier for them than for smaller firms

Question 9

What does natural monopolies mean?

Answer 9

monopolies with increasing returns to scale

Question 10

2 ways of price-setting for firms

Answer 10

1. Sell each unit at the same price (single-price monopoly)
2. Sells different units of its output for different prices w/o those differences being due to different costs (price discrimination)

Question 11

What does a monopoly look like, graphically?

Answer 11

Like a single demand curve bc theres only one supplier help

Question 12

Can monopolies set both price and quantity?

Answer 12

Naur
they set one and the market decides the other

Question 13

Marginal revenue Equation

Answer 13

change in total revenue
over
change in quantity ourput

Question 14

2 possible effects when lowering price

Answer 14

1. Total revenue goes up bc demand increases (quantity effect)
2. Total revenue goes down bc price went down (price effect)

Question 15

What is stronger at low levels of output?

Answer 15

quantity effect

Question 16

What is stronger at high levels of output?

Answer 16

price effect

Question 17

MR and Demand curves

Answer 17

• Same y-axis
• If D is linear so is MR
• the slope of MR is twice that of D
• MR is less than price when Q>0

Question 18

What does it mean, graphically, if MR > 0

Answer 18

• Total revenue goes up
• elastic

Question 19

What does it mean, graphically, if MR < 0

Answer 19

• total revenue goes down
• inelastic

Question 20

How do monopolies maximize their profit?

Answer 20

MC=MR bb

Question 21

What does adding the ATC to the profit-maximizing graph do?

Answer 21

It helps us calculate profit

Question 22

Profit equation

Answer 22

Q(P-ATC)

Question 23

What needs to happen for profit to be positive?

Answer 23

P must be greater than ATC

Question 24

What are the consequences of monopolies?

Answer 24

• higher prices
• lower quantities
• more PS
• less CS
• more DWL

Question 25

2 Policy remedies to monopolies

Answer 25

1. Public ownership (nationalize them) 2. Regulations (kinda like price ceilings)

Question 26

Why do regulations work

Answer 26

- As long as price is above MC, companies will still have incentive to work

Question 27

Types of regulations

Answer 27

1. Average cost pricing = Regulations set where ATC = P/demand 2. Marginal cost pricing = Regulation set where MC = P/demand *might require government subsidies

Question 28

Why are regulations not always efficient?

Answer 28

- Inadequate information (firms won't tell the government how much their processes actually cost so firms have to guess) - Regulatory capture (firms bribe regulators to lie, corrupcion)

Question 29

what does TR - VC equal?

Answer 29

Produccer surplus