economics chapter 12

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in a monopoly price exceeds

MR and MC

single price monopoly

MR is related to the elasticity of demand of its good

2 forces that operate in most markets

market power and competition

the more perfectly the monopoly can price discriminate,

the closer its output gets to the competitive output and the more efficient is the outcome

When natural or legal forces work to protect a firm from potential​ competitors, the market is said to have​ _______.

barrier to entry

A monopoly that can perfectly price discriminate has a marginal revenue curve that is steeper than the demand curve for the good that the monopoly produces.

false

Which of the following firms is most likely to be a​ monopoly?

local distributor of electricity

a profit-maximizing monopoly

never produces an output in the inelastic range of its demand curve. IF it did so, it could charge a higher price, produce a smaller quantity, and increase its profit

Average cost pricing rule

pricing to cover cost including normal profit means setting price equal to average total cost

If a monopoly can perfectly price​ discriminate, it produces no deadweight loss and is more efficient than a​ single-price monopoly.

true

A​ profit-maximizing monopoly never produces output in the​ _______ range of its​ _______ curve.

​inelastic; demand

to be able to price discriminate a monopoly must:

-identify and separate different buyer types -sell a product that cannot be resold

firms discriminate in 2 ways

-among units of a good -among groups of buyers

rent seekers pursue their goals in 2 ways

-buy a monopoly -create a monopoly

the main reasons why monopolies exist

-incentives to innovation -economies of scale and economies of scope

monopoly damages social interest

-produce less -increases cost of production -increases price

deadweight loss formula

.5 * (P2 - P1) * (Q1 - Q2).

monopoly 2 key features

1.no close substitutes 2.barriers to entry: legal or natual constraints that protect a firm from potential competitors

rent seeking

any attempt to capture a consumer surplus, a producer surplus or an economic profit

smaller output and higher price drive a wedge between marginal social benefit and marginal social cost and creates

a deadweight loss

single price

a firm that must sell each unit of its output for the same price to all its customers

Regulation that results in the efficient output and price is​ _______.

a marginal cost pricing rule

legal monopoly

a market in which competition and entry are restricted by granting of a public franchise, government license, patent,copyright

natural monopoly

an industry in which one firm can supply the entire market at a lower average total cost than two or more firms can

monoply

an industry that produces a good or service for which no close substitute exists and in which there is one supplier that is protected from competition by a barrier preventing the entry of new firms

A price cap regulation is often combined with​ _______ in case the regulator sets the cap too high.

earnings sharing regulation

perfect price discrimination

extracts the entire consumer surplus

a single-price monopoly

restricts its output and charges a higher price

MC pricing rule

sets price equal to MC. It maximizes total surplus in the regulated industry

market power

that ability to influence the market, and in particular the market price, by influencing the total quantity offered for sale

price discrimination

the discrimination of selling different units of a good or service for different prices

a monopoly doesn't set the price at

the maximum possible price at the maximum possible price, the firm would be able to sell only one unit of output


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