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Price Taker
answer
a buyer or seller that is unable to affect the market price
*competitive firm
*competitive firm
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Price Maker
answer
a firm that does not have to consider competitors when setting the prices of its products
*monopoly firm
*monopoly firm
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Monopoly
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a firm that is the sole seller of its product and if its product does not have any close substitutes
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Barriers to Entry
answer
a monopoly remains the only seller in its market because other firms cannot enter the market and compete with it
Three Main Sources:
- Monopoly resources
- Government regulation
- The Production Process
Three Main Sources:
- Monopoly resources
- Government regulation
- The Production Process
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Monopoly Resources
answer
A key resources required for production is owned by a single firm
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Government Regulation
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the government gives a single firm the exclusive right to produce some good or service
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The Production Process
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A single firm can produce output at a lower cost than can a larger number of firms
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Natural Monopoly
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a type of monopoly that arises because a single firm can supply a good or service to an entire market at a lower cost than could two or more firms
example: distribution of water
example: distribution of water
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Marginal Revenue
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the amount of revenue that the firm receives for each additional unit of output
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Monopoly Behavior
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A monopolist's marginal revere is less than the price of its good
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When a monopoly increases the amount it sells, this action has two effects on total revenue (P x Q)
answer
1. The Output Effect: More output is sold, so Q is higher, which tends to increase total revenue
2. The Price Effect: The price falls, so P is lower, which tends to decrease total revenue.
2. The Price Effect: The price falls, so P is lower, which tends to decrease total revenue.
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Socially Efficient Quantity
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is found where the demand curve and the marginal-cost curve intersect
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Price Discrimination
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the business practice of selling the same good at different prices to different customers
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Arbitrage
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the process of buying a good in one market at a low price and selling it in another market at a higher price to profit from the price difference
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Perfect Price Discrimination
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describes a situation in which the monopolist knows exactly each customer's willingness to pay and can charge each customer a different price
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Policymakers in the government can respond to the problem of monopoly in one of four ways:
answer
- By trying to make monopolized industries more competitive
- By regulating the behavior of the monopolies
- By turning some private monopolies into public enterprises
- By doing nothing at all
- By regulating the behavior of the monopolies
- By turning some private monopolies into public enterprises
- By doing nothing at all
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