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Microeconomics-Ch 11
monopolies
| Question | Answer |
|---|---|
| the ability to set the price of a good or service | market power |
| the only seller of a good or service that has no close substitutes | monopoly |
| the things that prevent other firms from entering the market | barriers to entry |
| scarce resources, economies of scale, governmental intervention, aggressive business tactics | possible barriers |
| the three types of barriers to entry | copyright, patent, natural market power |
| government- granted rights to the creator of literary or artistic world | copyright |
| government-granted permission to be the sole producers and sellers of a good | patent |
| exists when a single firm obtains market power through barriers to entry created by the firm itself | natural market power |
| 2 types of natural market power | control of key resources, economies of scale |
| example: professional sports teams controlling talent | control of key resources |
| example: the distribution of electricity | economies of scale |
| natural market power creates what | a natural monopoly |
| a market where a single firm can produce the entire market quantity demanded at a lower cost than multiple firms | natural monopoly |
| what differs between monopoly markets and perfectly competitive markets | marginal revenue |
| in a perfectly competitive market, marginal revenue= ? | price |
| Why does MR not equal price in a monopoly? | monopolies have some control over the price |
| profit maximizing quantity in a monopoly? | Marginal revenue = Marginal Cost |
| Why does the supply relationship not exist in a monopoly? | Because monopolies are price makers, not price takers |
| the practice of charging customers different prices for the same cost, when there are no cost differences | price discrimination |
| How many degrees of price discrimination are there? | 3 |
| each consumer is charged the maximum he/she is willing to pay (auction) | first degree |
| consumers are charged different prices based on the characteristic of the purchase (last minute hotel rooms) | second degree |
| consumers are charged different prices based on the characteristic of the customer or location (senior citizen discount) | third degree |
| government policies may try to prevent anti-competitive pricing and low quantities | antitrust policy |
| what do critics argue about antitrust policies | they are politically motivated and cause more harm than good |
| price = MC | efficient (socially optimal) price |
| price = ATC | fair-returns price |
| reasons a monopoly can be helpful | natural barriers to entry, innovation |
Created by:
lmssorgi
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