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