MicroEcon Ch. 10

Simultaneous consumption

(or nonrivalrous consumption) is a products ability to satisfy a large number of consumers at the same time. *for example, dell computers need to produce personal computers for each customers, while Microsoft needs to produce its windows program only once.

Price Discrimination can take 3 forms:

- charging each customer in a single market the maximum price she or he is willing to pay. - charging each customer one price for the first set of units purchased and a lower price for subsequent units purchased. - charging some customers one price and other customers another price.

A monopoly survives because of entry barriers such as __?

- economies of scale - patents and licenses - ownership of essential resources - strategic actions to exclude rivals

Price Discrimination is possible when the following conditions are met:

- monopoly power - market segregation - no resale

Main characteristics of pure monopoloy

- single seller - no close substitutes - price maker - blocked entry - Nonprice competition

What are the four reasons why costs may differ between competitive industry vs monopolist?

1) economies of scale 2) a factor called "X-inefficiency" 3) the need for monopoly-preserving expenditures 4) the "very long run" perspective, which allows for technological advance.

The monopolist maximizes profit (or minimizes loss) at the output where ______________ and charges the price that corresponds to that output on its demand curve.

MR = MC

When long-run ATC is declining, only a single producer, a ________ can produce any particular output at minimum total cost.

Monopolist.

Oligopoly

a market structure dominated by a few firms.

The conditions necessary for price discrimination are:

a) monopoly power b) the ability to segregate buyers on the basis of demand elasticities c) the inability of buyers to resell the product

The socially optimal price (P = MC) achieves allocative efficiency but may result in losses; the fair-return price( P = ATC) yields a normal profit but fails to achieve ________

allocative efficiency

Network effects

are present if the value of a product to each user, including existing users, increases as the total number of users rise. *good examples are computer software, cell phones, and Web sites like Facebook where the content is provided by users. *the greater the number of persons connected to the system, the more the benefits of the product to each person are magnified.

Barriers to Entry

are the factors that prohibit firms from entering an industry.

Why does a monopolist continue to operate even during a loss?

because its total loss is less than its fixed cost. *monopolist won't shut down unless its fixed cost is higher than its total loss.

Monopolists MR curve lies ___________ the demand curve, indicating that marginal revenue is less than price at every output quantity but the very first unit.

below.

Modern technology in some industries is such hat economies of scale---

declining average total cost with added firm size -- are extensive.

All imperfect competitors, whether pure monopolists, oligopolists, or monopolistic competitors, face ________________ demand curves.

downsloping.

If a pure monopoly exists in such an industry,____________________ will serve as an entry barrier and will protect the monopolist from competition.

economies of scale.

Pure Monopoly

exists when a single firm is the sole producer of a product for which there are no close substitutes.

Monopoly price can be reduced and output increased though ________ _______.

government regulation

Rent-seeking behavior

is any activity designed to transfer income or wealth to a particular firm or resource supplier at someone else's, or even society's expense.`

With a fixed downsloping demand curve the pure monopolist can increase sales only by charging a.....

lower price.

a monopoly firm is referred to as a __________ if the market demand curve intersects the long-run ATC curve at any point where average total costs are declining.

natural monopoly

does the monopolist seek maximum price?

no, a monopolist seeks maximum profit.

In the long run the pure competitor is destined to have only a ______ profit.

normal

X-inefficiency

occurs when a firm produces output at a higher cost than is necessary to produce it. located above the ATC *operation at greater than lowest cost for a particular level of output

Compared with single pricing by monopolist, _______ _____ ______ results in greater profit and greater output. Many consumers pay higher prices, but other buyers pay prices below the single price.

perfect price discrimination

2.The pure monopolist has no supply curve because there is no unique relationship between ______ and ______ supplied. .

price quantity The price and quantity supplied will always depend on the location of the demand curve

Firms with downsloping demand curves are _________?

price makers

In the total revenue test, when demand is inelastic, a decline in price will ________total revenue.

reduce

The monopolist has no ________ curve since any of several prices can be associated with a specific quantity of output supplied.

supply curve

Price Discrimination

the practice of selling a specific product at more than one price when the price differences are not justified by cost differences.

Fair-Return Price: P = ATC

the price of a product that enables its producer to obtain a normal profit and that is equal to the average total cost of producing it. a ruling in which the Supreme Court held that regulatory agencies must permit regulated utility owners to enjoy a "fair return" on their investments.

Socially Optimal Price: P = MC

the price of a product that results in the most efficient allocation of an economy's resources and that is equal to the marginal cost of the product.

Where is the pure monopolists supply curve located?

the pure monopolist has no supply curve. *like the competitive firm, the monopolist equates marginal revenue and marginal cost to determine output, but for the monopolist marginal revenue is less than price. *there is no single, unique price associated with each output level Qm, and so there is no supply curve for the pure monopolist.

In the total revenue test, when demand is elastic, a decline in price will increase ___________?

total revenue

Price discrimination occurs__

when a firm sells a product at different prices that are not based on cost differences.