question
What is price discrimination?
answer
selling the same good at different prices to different buyers
Ex: Airline tickets, HS basketball games (parents vs students)
Ex: Airline tickets, HS basketball games (parents vs students)
question
What are the conditions of a price discriminating monopoly?
answer
1. Must have monopoly power
2. Must be able to segregate the market
3. Consumers must not be able to resell the product
2. Must be able to segregate the market
3. Consumers must not be able to resell the product
question
What is the goal of price discrimination?
answer
Charge each consumer what they are willing to pay to increase profits
question
Who is charged higher prices by a price discriminating monopoly?
answer
Those with inelastic demand
question
Who is charged lower prices by a price discriminating monopoly?
answer
those with elastic demand
question
How to calculate total revenue for a price discriminating monopoly?
answer
Price of the 1st Quantity + Price of the 2nd Quantity + Price of the 3rd Quantity; 10 + 9 + 8
question
For price discriminating monopolies, what does MR equal?
answer
the demand curve
question
What does price discrimination eliminate?
answer
Consumer Surplus and DWL
question
Where do price discriminating firms produce?
answer
At the socially optimal quantity; D = MC
question
Characteristics of monopolistic competition
answer
large number of sellers, product differentiation, some control over price, easy entry and exit, and advertising
question
Monopolistic qualities of monopolistic competition
answer
-control over price of own good due to differentiated product
-D greater than MR
-plenty of advertising
-not efficient
-D greater than MR
-plenty of advertising
-not efficient
question
Perfect competition qualities of Monopolistic Competition
answer
- large number of sellers
- relatively easy and entry
- zero economic profit in the long run
- relatively easy and entry
- zero economic profit in the long run
question
What does differentiated products mean?
answer
Goods are not identical; each firm makes something unique about its good
question
What is non-price competition?
answer
emphasizing factors other than price to distinguish a product from competing brands; brand names, product attributes, service, advertising
question
What are the two goals of advertising?
answer
increase demand and make demand more inelastic
question
Relationship between MR and Demand in monopolistic competition
answer
MR is less than Demand; in the short run it's the same as a monopoly graph
question
What happens in the long run for monopolistic competition when there is profit?
answer
More firms will enter, increasing substitutes and driving down the demand for the firms already in the market. Brings us to zero economic profit
question
What happens in the long run for monopolistic competition when there are losses?
answer
Firms will exit, resulting in less substitutes and an increase in demand
question
Are monopolistic competitive firms efficient?
answer
No; in the long run, they are not allocatively efficient because D does not equal MC. They are not productively efficient because they are not producing at the Minimum ATC
question
What is excess capacity?
answer
when a firm produces at an output level that is smaller than the output level needed to minimize average total costs
question
Where is excess capacity located on a graph?
answer
The gap between the minimum ATC output and the profit maximizing output
question
What would happen to a monopolistically competitive firm in long-run equillibrium if they switch to being productively efficient?
answer
They would incur a loss; TC > TR
question
What are the characteristics of a monopolistically competitive firm in long-run equillibrium?
answer
It has excess capacity, its output price exceeds marginal cost , and it has zero economic profit
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