question
What is optimal output or quantity on a demand curve in a monopolistic competitive environment?
answer
Where marginal revenue=marginal cost
question
What is a firms optimal price in a monopolistic competitive environment?
answer
Take units produced at MR=MC and go up to demand line and over to the price. That is your optimal price.
question
What are firms maximum profits in a monopolistic competitive environment?
answer
Optimal price-Avg total cost x Optimal quantity (Note: Average total cost is where optimal quantity meet ATC line).
question
Given elasticity of demand for product and elasticity of demand for advertising, how do you determine advertising to sales ratio?
answer
Elasticity of Advertising/Elasticity of Product= Answer. (Note: Ignore signs of numbers).
question
How do you find profit maximizing level of advertising, given the revenues?
answer
Take optimal advertising ratio answer x Revenues= Profit maximizing of advertising.
question
Companies that offer new products in short run in monopolistic environment
answer
They make short run profits, but in long run, other companies will innovate and their economic profit becomes 0.
question
How do you calculate advertising elasticity?
answer
Take advertising to sales x elasticity of demand. Above 1 is elastic and farther out means it's more responsive.
question
How do you calculate the HHI Premerger Index?
answer
Take number of firms x (Percentage of market share) SQUARED. If two firms merge, take two off of HHI firm number.
question
If HHI is less than 2,500
answer
You may be fine to merge, but it may be challenged.
question
If a monopolist is unregulated, how do you determine it's profit maximizing price?
answer
Where MR=MC, go up to demand curve and it's that price.
question
What level of consumer surplus will the price be if a monopolist is unregulated?
answer
Consumer surplus is the area under demand curve and above price.
question
If a firm is able to cover variable costs at regulated price, in the short run, what will it produce?
answer
Where regulated price meets demand on graph.
question
In the long run, what will happen if a firm continues to operate at a regulated price below Average Total Cost?
answer
It will make $0
question
If you are a monopolist, your optimal price per unit is?
answer
(elasticity of demand/ 1+elasticity of demand) x Marginal Cost.
Note: Watch the signs, if it's a - elasticity, just put the number up against the 1, even though the formula has a +.
Note: Watch the signs, if it's a - elasticity, just put the number up against the 1, even though the formula has a +.
question
If you charge the same unit price to customers, how do you determine optimal price?
answer
Where MC=MR, go up to demand curve and over to price.
question
If you charge the same unit price to customers, how do you determine optimal output or quantity?
answer
Where MC=MR, go down to quantity.
question
If you charge the same unit price to customers, how do you determine your profits?
answer
quantity (NOTE: Where MC=MR) x (Optimal Price-MC)= Answer
question
If you engage in first degree price discrimination, how do you determine optimal price?
answer
Price at top of demand curve, down to price where demand meets MC.
question
If you engage in first degree price discrimination, how do you determine optimal quantity or output?
answer
The quantity where MC=Demand
question
How do you determine profits if you engage in first degree price discrimination?
answer
Take quantity or output (NOTE: The quantity where MC=Demand) x (top of demand curve price) - (price where demand meets MC) x (.5)
question
How do you determine optimal price if you engage in two-part pricing?
answer
Charge a fixed fee of first degree price discrimination price, then price where MC=D until you receive total profits of that fixed fee.
question
How do you determine optimal mark ups and pricing under third degree price discrimination with two groups?
answer
Elasticity of demand/ 1 + Elasticity of Demand x Marginal Cost. (NOTE: Aside from formula signs, just put elasticity number in there. If negative then just put - next to the 1).
question
Third degree price discrimination may come in handy:
answer
To prevent resale between two groups.
question
How do you figure bundling problems with various types?
answer
Low cost = all higher consumers buy. So, multiply amount of consumers by low price. (Look at question 7 again).
question
For bundling question regarding if you charge number for bundle containing X and Y:
answer
Take price of bundle x all consumers (Look this over again).
question
Where is consumer surplus on a graph?
answer
area below the demand curve and above the price
question
Where is production surplus on a graph?
answer
The area below market price and above supply curve (line).
question
In a perfect competition, what is price?
answer
P=MR, as opposed to monopoly where P no longer = MR.
question
Where is deadweight loss on monopolist graph?
answer
Monopoly charges same price for each customer, so where Pm goes over to demand curve and where Qm goes up to demand curve, the triangle to right.
question
Where is total welfare of graph?
answer
Consumer surplus + Producer surplus
question
Different types of elasticities?
answer
Elastic: Demand if elastic if absolute value of own price elasticity is greater than 1.
Inelastic: Demand is inelastic if absolute value of own price elasticity is less than 1.
Unitary: Demand is unitary elastic if absolute value of own price elasticity is equal to 1.
Inelastic: Demand is inelastic if absolute value of own price elasticity is less than 1.
Unitary: Demand is unitary elastic if absolute value of own price elasticity is equal to 1.
question
How do you calculate own price elasticity?
answer
The % change in quantity demanded/percentage change in price of the good.
question
Total Revenue Test
answer
If demand is elastic, an increase (decrease) in price will lead to a decrease (increase) in total revenue. If demand is inelastic, an increase (decrease) in price will lead to an increase (decrease) in total revenue. Finally, total revenue is maximized at the point where demand is unitary elastic.
question
What does dead weight loss look like on graph?
answer
It's the consumer and producer surplus that is lost by charging a price in excess of marginal cost.
question
Where is producer surplus and consumer on price ceiling?
answer
If asked what is CS or PS value subtract numbers from one another.
question
How much should monopolist produce on graph?
answer
All firms should make quantity where MC=MR, if it's under ATC, firms will lose money in long run.
question
Think back to perfect competition: how can the individual firm adjust its price to maximize revenue?
answer
a.It should charge the price where demand is unitary elastic b.It should charge a price just a little lower than its closest competitor c.It can't adjust away from the going price
question
The lerner index can give us info on a firms market power.
answer
First degree= Seller charges customized price to each customer.
Second Degree= Bulk Discounting
Third Degree= Market segmentation.
Second Degree= Bulk Discounting
Third Degree= Market segmentation.
question
Different types of price discrimination
answer
1) Significant fixed costs=natural monopoly.
2) Economies of Scale: Exist whenever long-run average costs decline as output increases.
3) Economies of Scope: Exist when the total cost of producing two products within the same firm is lower than when the products are produced by separate firms.
2) Economies of Scale: Exist whenever long-run average costs decline as output increases.
3) Economies of Scope: Exist when the total cost of producing two products within the same firm is lower than when the products are produced by separate firms.
question
Barriers to entry in monopoly
answer
From the point of view of the firm, entry plays out as decreased demand for that firm's product•The demand (and MR) curve shift left•This continues until profits equal zero!
DEMAND AND MR CURVE (LINE) SHIFT LEFT.
DEMAND AND MR CURVE (LINE) SHIFT LEFT.
question
Demand and MR for monopolist
answer
...
question
What does long run look like in monopolistic competition?
answer
A strategy where a firm responds to under-pricing by choosing a price so low that each firm makes zero economic profit. AS SOON AS OPPONENT DEFECTS, THEY WILL DEFECT THE REMAINDER OF THE GAME.
question
Payoff Matrix, simultaneous, one shot
answer
an economic concept that states that the price of a good rises and falls depending on how many people want it (demand) and depending on how much of the good is available (supply)
question
tit-for-tat strategy
answer
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question
What is the grim trigger strategy?
answer
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question
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answer
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question
Supply and Demand
answer
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question
Supply and Demand
answer
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