Chapter 15
If the government regulates the price that a natural monopolist can charge to be equal to the firm's marginal cost, the firm will
earn negative profits, causing the firm to exit the industry
Drug companies are allowed to be monopolists in the drugs they discover in order to
encourage research
Perfect price discrimination
increases profits to the firm increases total surplus decreases consumer surplus
When there are economies of scale over the relevant range of output for a monopoly, the monopoly
is a natural monopoly
Exclusive ownership of a key source
is a potential but rare cause of a monopoly
A competitive firm
is a price taker, whereas a monopolist is a price maker
For a firm to price discriminate,
it must have some market power
For a monopolist, marginal revenue is
less than price, whereas marginal revenue is equal to price for a perfectly competitive firm.
Private ownership of a monopoly may benefit society because the monopoly will have an incentive to
lower its cost to earn a higher profit
In order to sell more of its product, a monopolist must
lower its price
Price discrimination requires the firm to
separate customers according to their willingnesses to pay
A government-created monopoly arises when
the government gives a firm the exclusive right to sell some good or service
One problem with government operation of monopolies is that
the government typically has little incentive to reduce costs
When a monopoly increases its output and sales
the output effect works to increase total revenue, and the price effect works to decrease total revenue
Many movie theaters allow discount tickets to be sold to senior citizens because
the theaters are profit maximizers
A natural monopoly arises when
there are economies of scale over the relevant range of output
Monopoly pricing prevents some mutually beneficial trades from taking place. These unrealized, mutually beneficial trades are
a deadweight loss to society
When we compare economic welfare in a monopoly market to a competitive market, the profits earned by the monopolist represent
a transfer of benefits from the consumer to the producer
The fundamental source of monopoly power is
barriers to entry
A monopoly can earn positive profits because it
can maintain a price such that total revenues will exceed total costs
A movie theater can increase its profits through price discrimination by charging a higher price to adults and a lower price to children if it
can prevent children from buying the lower-priced tickets and selling them to adults has some degree of monopoly pricing power can easily distinguish between the two groups of costumers
A monopoly
can set the price it charges for its output but faces a downward-sloping demand curve so it cannot earn unlimited profits
Marginal revenue for a monopolist is computed by
change in total revenue per one unit increase in quantity sold
A monopoly firm is a price
maker and has no supply curve
A profit-maximizing monopolist will produce the level of output at which
marginal revenue is equal to marginal cost
Deadweight loss
measures monopoly inefficiency
For a monopolist, when the output effect is greater than the price effect, marginal revenue is
positive
What do economists call the business practice of selling the same good at difference prices to different customers?
price discrimination
Many economists criticize monopolists because they
produce less than the socially efficient level of output
When regulators use a marginal-cost pricing strategy to regulate a natural monopoly, the regulated monopoly
will experience a loss will experience a price below average total cost may rely on a government subsidy to remain in business
