Microeconomics chapter 15 flashcards

single seller
no close substitutes
"price maker"
blocked entry(economies of scale)
non price competition

1.regulated or natural monopolies
-DTE
-amtrak

2. Geographical monopolies
-any major sports league team such as detroit tigers.

3.near monopolies
- De Beers( controls the diamond trade)
- frisbee (only one frisbee, everything else is a flying disk

1. economies of scale
2. legal barriers to entry
-patents
-licenses
3. ownership of control of essential resources
4. pricing and other strategic barriers to entry

Monopoly is secure
no government regulation
single-price monopolist( they do not price discriminate)

Me going to a movie theater to buy the same ticket to watch the same movie as my mother, but I get a discount for showing my clemson student ID that shows I am currently a student in college.

entire market demand

less than

- marginal revenue is less than price, to increase sales, a firm must lower price
- a firm is a price maker, choose P, Q combination
- operate in the elastic region; marginal revenue less than o and total revenue test

TR= P1 x Q1
TR= P2 x Q2

compare the two,
if it is less than 1, it is inelastic, if it is more than one it is elastic

As price decreases, total revenue increases: elastic
as price decreases, total revenue decreases: inelastic

a natural monopoly

Competitive firm: P=MR=MC
Monopoly firm: P>MR=MC

more output is sold, the higher Q is, which increases total revenue

The price falls, so P is lower, which tends to decrease total revenue

by choosing the quantity at which marginal revenue equals marginal cost

In other words, look at the highest profit made on a table under profit or loss

-marginal revenue, marginal cost rule
-same cost definitions

- no supply curve( firm does not care

-firms do not charge the highest price possible, they charge the highest price that maximizes profit
- firms maximize total profit, not per unit
-there is a possibility of losses

use a demand curve

False

True

Efficient
Productive efficiency: P= minimum ATC( breaking even at lowest prodution cost)
Allocative efficiency: P=MC
CS+ PS is maximized ( consumer surplus + production surplus)

Inefficient
-change p>MC( extracting more)
-deadweight loss

1. economies of scale
-simultaneous consumption
- network effect ( the bigger the network, the lower the cost to provide)

2.X-inefficiency
- lowest ATC not achieved
3. rent seeking behavior
4. Technological advance
- more likely with monopoly ( no competition, so no need to improve)

1. use antitrust laws
-divide the firm

2. Natural monopoly
-regulate price

3. Ignore
-unstable in the longrun

-natural monopolies
-rate regulation
-socially optimum price: P=MC
-Fair return price: P=ATC

-charge each customer max willingness to pay
-charge one price for first unit and a lower price for subsequent units
-charge different classes of customers different prices

- monopoly power
-market segregation
-no resale

Examples
airfares
electric utilities
theaters and golf courses

D=MR

66 years of monopoly pricing
-independent producers went along
-mid-2000 monopoly abandoned
-new discoveries
-independent producers withdrew
-political considerations
new strategy: the diamond supplier of choice