question
What are the characteristics of a monopoly?
answer
single seller, unique good with no close substitutes, price maker, high barriers to entry into the market, some advertising to increase demand
question
What are the four types of monopolies?
answer
geography is the barrier to entry, the government is the barrier to entry, technology is the barrier to entry, and mass production/low costs are barriers to entry
question
What is meant by geography is the barrier to entry?
answer
location or control of resources limits competition and leads to one supplier
question
What is meant by the government is the barrier to entry?
answer
the government allows monopoly for public benefits or to stimulate innovation
question
What is meant by technology is the barrier to entry?
answer
patents and widespread availability of certain products lead to only one major firm controlling a market
question
What is meant by mass production/low costs are the barriers to entry?
answer
economies of scale make it impractical to have smaller firms
question
What is a natural monopoly?
answer
it is natural for only one firm to produce because they can produce at the lowest cost
question
What is different about graphing monopolies compared to perfect competition?
answer
there is only one graph because the firm IS the industry; marginal revenue does NOT equal price
question
Why does marginal revenue not equal price?
answer
in order for a monopoly to increase output, it must lower price for every additional quantity
question
What happens to total revenue when marginal revenue hits zero?
answer
total revenue is at its maximum
question
When does a monopoly have elastic demand?
answer
when price is decreasing and TR is increasing
question
When does a monopoly have inelastic demand?
answer
when price is decreasing and TR is decreasing
question
When will a monopoly produce?
answer
only in the elastic range
question
What output should a monopoly produce at?
answer
a monopolist produces where MR=MC, but it charges the price consumers are willing to pay identified by the demand curve at that quantity
question
What must be shown on a monopoly graph with a loss?
answer
AVC
question
Is surplus maximized in a monopoly?
answer
no because at MR=MC, a monopolist will produce less and charge a higher price resulting in a deadweight loss; CS decreases and PS increases
question
Are monopolies productively efficient?
answer
no because they are not producing at the lowest cost (minimum ATC)
question
Are monopolies allocatively efficient?
answer
no because price is greater and the monopoly is underproducing
question
Why are monopolies inefficient?
answer
charge a higher price, don't produce enough, produce at higher costs, and have little incentive to innovate
question
Why would the government need to regulate a monopoly?
answer
to keep prices low and to make monopolies efficient
question
How does the government regulate monopolies?
answer
use price controls aka price ceilings
question
Why doesn't the government use taxes?
answer
taxes limit supply
question
What is the socially optimal price?
answer
P=MC (allocatively efficient)
question
What is the fair-return price?
answer
P=ATC (break-even/normal profit?
question
What happens when the government sets a price ceiling at the socially optimal price?
answer
the firm makes a loss and requires a subsidy
question
What is price discrimination?
answer
selling the same good at different prices to different buyers
question
What is the purpose of price discrimination?
answer
it seeks to charge each consumer what they are willing to pay in an effort to increase profits
question
What are the required conditions for price discrimination?
answer
must have monopoly power, must be able to segregate the market, consumers must NOT be able to resell the product, MR = D
question
What are the results of price discrimination?
answer
several prices, more salty, no CS, and a higher socially optimal quantity
question
good luck on the test, peeples!
answer
i believe in you :))
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