MicroEconomics Quiz Monopoly & Monopolistic Competition

1. single firm
firm is the industry
2. there are no close substitutes
3. there is no guarantee of perfect information
4. significant barriers to entry

1. legal barriers
license - permit to do something (who is allowed)
regulations - rules concerning production (how to engage)
patent - protection of intellectual property (secrets)
tariff - tax on imports (foreign competitors)
2. control access to vital resource
rare and temporary (alternate source)
3. economies of scale
"natural monopoly (huge fixed cost spread thin with more production and second firm cannot compete with lower prices)

monopolist faces entire market demand: price-seeker

produce where MR=MC

the ability to charge different prices to different consumers for the same product

1. downward sloping demand (some variation to what people are willing to pay)
2. quickly, easily and cheaply identify consumers based on WTP (age, gender, quantity, income/finances)
3. prevent arbitrage (re-selling)

charge each individual their exact WTP (relatively inelastic)

1. efficiency
productive: not necessarily
allocative: no (P>MC = underproducing)
2. surplus
transfer of some consumer surplus to producer: dead-weight loss

1. sufficiently large # of firms such that each individual firm accounts for a very small market share
each firm has 100% of market for their own product
little to no collusion
firms will act independent of one another
2. product differentiation
large # of close substitutes
3. not necessarily perfect information
firms protect information about "differentness"
4. no barriers to entry/exit in LR
5. incentive to advertise

downward sloping demand but demand is still relatively elastic

produce where MR=MC

because of the range of prices, MR falls twice as fast as the demand: to sell more units, must decrease price per unit which means each additional unit produces less and less revenue

highlight differentness
enhance perceived value
increase WTP

1. mode/medium
direct (know customers) vs. mass (everyone); interactive (internet)
2. type of good
search (know what you want) vs. experience (don't know what you want until experience it); credence (reviews)
3. informational vs. persuasive