ECON Micro Monopoly
Price discrimination occurs when a firm sells
a given product at different prices unrelated to differences in cost
Significant economies of scale create
a natural monopoly
Some barriers to entry
a patent, governmental restrictions, economies of scale
A firm that faces a downward‐sloping demand curve is
a price searcher
A patent protects an inventorʹs creation from being copied or stolen for a period of
20 years
A cartel
An association of producers in an industry that agree to set common prices and output quotas to prevent competition
P > MC
Indicates economic inefficiency of a monopoly
When TR is increasing as a monopolistʹs output increases
MR is positive
A monopolistic firm will shut down if
P < AVC for every level of output
For a profit-maximizing monopolist
P > MC
In order to sell more goods and/or services a monopoly must
Reduce price and increase output
Price discrimination
Selling a product at different prices when the price difference is unrelated to costs
Necessary for price discrimination to occur
The firm must be able to separate the market into identifiable groups, have a downward‐sloping demand curve, has to be able to prevent resale of the product
Economies of scale
When a firm experiences declining long-run average total costs as it produces more output
One of the characteristic of a monopoly firm is
barriers to entry
A monopolist is producing at an output level at which MR = $6 and its MC = $9. It could increase profits
by reducing output and by increasing price
A monopolist
does not have an elastic demand curve
Unlike a perfectly competitive firm, a monopolist faces a demand curve that is
downward‐sloping
The MR curve of a monopolist is
downward‐sloping and below the demand curve
A single supplier of a good or service which there is no close substitute
is a monopolist
The monopolist demand curve
is the industry demand curve
If the monopolist is producing at an output rate at which P = ATC, then
its economic profit will be zero
For a monopolist marginal revenue is always
less than price
Government barriers to entry
licenses, tariffs, patents
For a monopolist
marginal revenue is less than price for all units being sold except the first unit
Senior citizens can buy movie tickets at a lower price than the general public. This is an example of
price discrimination
Price discrimination exists when
prices a firm charges different buyers for its product differ but costs do not
Assume that a monopoly is producing at a profit-maximizing output level. If the firmʹs total fixed costs decrease, the firm
should continue to produce at the same level
A barrier to entry
slows or even prevents entry into a market
consumer surplus
the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it
A privately owned monopoly will NEVER produce along a range of output for which
the demand curve is inelastic
a deadweight loss
the fall in total surplus that results from a market distortion, such as a tax
In a monopoly market structure
the firm is the whole industry
A monopolyʹs goal using price discrimination is to increase
total profit
A natural monopoly
usually arises when there are large economies of scale
