Pure Monopoly

If the industry were perfectly competitive, the market price would be

$14

Use the following table to answer the next question. The marginal revenue generated by the pure monopoly from selling the third unit of output is

$3

regulated normal profit price

A regulated price that is equal to the average total cost of production. The normal profit price can be found where the average total cost curve intersects the demand curve.

regulated competitive price

A regulated price that is equal to the marginal cost of production. The competitive price can be found where the marginal cost curve intersects the demand curve, and it is allocatively efficient.

A firm that has the long-run cost curves shown in the graph above would not be able to_____________.

Attain lower unit costs by reducing its output level.

profit maximization that is the same for PC and PM firms

Both follow the marginal revenue and marginal cost rule to maximize profit. Aka they will produce up to the point where marginal revenue = marginal cost.

A pure monopoly is not allocatively efficient because at the profit-maximizing level of output ______________.

P > MC

a pure monopoly is not allocatively efficient because at the profit-maximizing level of output ___________ .

P > MC

Use the following graph showing the demand and marginal revenue curves faced by a pure monopoly to answer the next question. What price should the pure monopoly charge to maximize total revenue?

P3

difference between perfect competition and pure monopoly in profit maximization

Pure monopolies will charge consumers the price they are willing and able to pay for amount of output available.

Third degree price discrimination for concessions at ball parks is not applied to adults and children because___________.

There can be exchange of the products from children, who could buy them at a lower price, to adults.

non-price competition

competition based on factors other than price. examples include promoting qualities of the product and participating in social activities.

Many people believe that pure monopolies charge any price they want to without affecting sales. Instead, the output level for a profit-maximizing pure monopoly occurs where _____________.

marginal revenue equals marginal cost

productive efficiency

occurs when firms produce output in the least costly way. is possible for pure monopolies, but is unlikely.

allocative efficiency

producing the amount of output that maximizes the sum of producer and consumer surpluses. not possible for pure monopolies.

deadweight loss

represents the amount of consumer and producer surplus forgone because the pure monopoly charges a price higher than that equal to MC

Pure Monopoly

the only seller in the market with no close substitutes. They are price makers that control amounts produced and by doing so they control the price. Market entry is very difficult or blocked completely and engages in non price competition.

unregulated monopoly price

the profit-maximizing price that will result from an unregulated monopolistic market.

Which of the following statements is a major criticism of a pure monopoly as a source of allocative inefficiency?

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