question
Monopoly
answer
If substantial pricing power for product or set of customers exists
question
Marginal customer
answer
Customer on the border/margin between buying and not buying for a certain price
question
Infra-marginal customers
answer
Customers already being served at a higher price who are paying a lower price than their WTP in case of a price decrease (negatively affecting revenue)
question
Marginal revenue curve
answer
Downwards sloping
Not the same like demand curve
Maximum profits for monopolist: where marginal/variable costs intersect with marginal revenue curve
Not the same like demand curve
Maximum profits for monopolist: where marginal/variable costs intersect with marginal revenue curve
question
Marginal costs increase, optimal price must be ...
answer
Increased
question
Marginal costs decrease, optimal price must be ...
answer
Decreased
question
Marginal Revenue (MR)
answer
the change in total revenue from selling one more unit of a product
Net: Gain from marginal customer - loss from infra marginal customers
Net: Gain from marginal customer - loss from infra marginal customers
question
If MC increase: MR higher or lower than MC?
answer
Lower; price increase needed for maximizing revenue
question
Maximum profit when
answer
MC = MR
question
If MR is higher than MC
answer
Increase production further
OR reduce price
OR reduce price
question
MR calculation
answer
Change in revenue/ change in quantity
question
Competence market: marginal revenue curve:
answer
Demand curve = marginal revenue curve
question
Loss of infra marginal customer difference between monopolist vs competition
answer
Loss is higher for monopolist than competitive market
question
Fixed costs: Impact on pricing
answer
Not in short term as maximum revenue is achieved with MC=MR, but long term decision making is affected (shutdown decision)
question
Price discrimination first degree
answer
Perfect discrimination:
Set price for each customer individually based on WTP; max price per customer
No deadweight loss
No consumer surplus
All surplus captured by firm
Set price for each customer individually based on WTP; max price per customer
No deadweight loss
No consumer surplus
All surplus captured by firm
question
Deadweight Loss (DWL)
answer
Lost value by not closing transaction based on WTP<price even though
WTP> marginal costs
WTP> marginal costs
question
Lost value
answer
Difference in production costs and WTP
question
Price discrimination: a firm must be able
answer
To prevent consumers with high WTP to buy at lower prices
question
What prevents price discrimination?
answer
-competition by other firms
-low WTP costumer reselling to high WTP customers
-low WTP costumer reselling to high WTP customers
question
Second degree price discrimination
answer
Self-selection
Key: high WTP customer shouldn't want or be prevented from taking advantage of lower prices
Key: high WTP customer shouldn't want or be prevented from taking advantage of lower prices
question
Bundled prices as discrimination mechanism
answer
...
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