pure monopoly

second-degree price discrimination is also known as:

block pricing

marginal revenue=

change in total revenue / change in quantity

pure monopolies

-only seller in market -no close substitutes -blocked entry -price maker (they control output and prices) -nonprice competition -face the entire market demand instead of sharing it with other sellers -ex. firms in utility industry

allocative efficiency

A state of the economy in which production is in accordance with consumer preferences; in particular, every good or service is produced up to the point where the last unit provides a marginal benefit to society equal to the marginal cost of producing it

a pure monopoly will maximize output when:

MC=MR

which of the following statements is a major criticism of a pure monopoly as a course of allocative inefficiency?

a pure monopoly fails to expand output to the level where the price of an additional unit is just equal to its marginal cost.

are pure monopolies efficient?

allocative: no bc lesser q at higher price bc pure monopoly produces MC=MR and can charge what they want which creates deadweight loss productive: unlikely bc they do not face competitive pressures

when a pure monopoly practices first-degree price discrimination, the ____ curve becomes marginal revenue curve

demand

demand faced by a pure monopoly is____

downward sloping, indicating that higher quantities are demanded at lower prices & lower Q are demanded at higher prices

firms will charge charge consumer gross with more _____ a _____ price

elastic (affected by price change), lower

natural monopolies result from

extensive economies of scale in production

price discrimination

firms can manipulate prices and segregate certain consumers certain prices for the same prices to maximize profits ex. senior movie tickets

perfect price discrimination and personal pricing are different names for

first-degree price discrimination

Competitive price

govt forces monopoly to charge an allocativley efficient price, the price is found where Demand and MC curves cross -if price is below ATC theres a loss and govt. will have to subside

when regulators require a monopoly to charge the normal profit price:

the monopoly has zero economic profit the monopoly has little incentive to reduce its costs of production

second-degree price discrimination

the practice of charging different prices per unit for different quantities, or blocks of a good or service ex.) different size cereal boxes in a store vs. Costco

Economic profit for pure monopoly occurs when:

the price determined by maximizing profits is greater than the ATC (shaded box in-between) = (Price - ATC) x Q

Economic loss for pure monopoly occurs when

the price is less than ATC

natural monopoly

when economies of scale are so extensive that a market is Bettie served by a single firm -rare and regulated by govt

consumer surplus

area below demand curve and above the ticket price

a pure monopoly may generate economic profits because _____

barriers to entry

Normal Profit price:

govt imposes new price at where ATC and D cross to help consumers while still insuring monopoly makes a profit

why is the marginal revenue curve below the demand curve?

if a monopoly wants to sell more units, it must lower the price for every unit it sells

In many large U.S. cities, taxicab companies operate as near monopolies because of:

licenses

to find price that monopoly's will charge you:

look where mc=mr and then projecting Q up to the demand curve and then across to the corresponding price

with a natural monopoly, the Normal profit price is_____ and the competitive price is _____

not allocatively efficient; allocatively efficient

contestable firm

only one firm but no real barriers to entry