what are the 3 characteristics of a monopoly
- only onf firms operating in mkt but many buyers
- prohibitive barriers to entry
- no close substitutes for the product (no comp)
what are the 4 types of barriers to entry
- Gov (patents/copyrights)
- Resource Control (one firm buys all of non producable resource)
- Network Externality (more people using it makes it hard to enter)
- Monopolistic Efficiency (easier if only 1 firm)
how do monopolists increase product
to increase product it must lower price for all additional units and all PREVIOUS UNITS. (this is why MR < D)
what happens to monpolistic economic profits in the LR
irrelevant for monopolists because they can charge whatever although they are constrained by demand and cost
on what 4 conditions can firms price discriminate
- firms must have some degree of market power
- consumers must have different elasticities of demand + willingness/ability to pay
- firms must be able to identify different elasticities and be able to charge accordingly
- resale by consumers not possible
define first degree price discrimination
when consumers are buying credence services (highly specialised so reasonable value/quality is unknown) consumers pay their highest price willing to be paid and sellers convert all consumer surplus to PS so revenue increases
define second degree price discrimination
firms offer a range of pricing schemes from which consumers choose revealing their elasticity of demand (type of airline ticket)
define third degree price discrimination
seller can segment market in to elasticity group and firms identify who belongs to each, consumer has no choice (movie tickets concession, senior etc)
draw the graphs for a monopoly and perf competition writing the PS, CS and DWL.
yes
does a monopolist have productive, allocative and dynamic efficiency
product: no beause it has no need to produce at minimum ATC (produces to the left)
Allocative: no price >MC
dynamic: yes - only large firms can take on R+D so gov grants them patent to produce this which encourages such investment)
what are the PRO and CON implications fo price discrimination
PRO: good for fimrs they can earn higher profit
CON: Bad for overall buyer as CS always decrease but student/aged care can benefit
what are the PRO and CON implications of first degree price discrimination
PRO: overall good due to allocative efficiency because MC of last unit = price charged for that unit so no DWL
CON: rare, CS = 0 and no reason for firms to be productively efficient
draw a diagram of a monopoly with no price discrimination and with price discrim (include CS, PS and DWL)
poo
