econ chapter 14
controlled by a monopolist
a firm that is the only producer of a good that has no close substitutes
the ability of a monopolist to raise its price above the competitve level by reducing output
barrier to entry
something that prevents other firms from enterying an industry
what would cause a barrier to entry?
control of natural resources or inputs
increasing returns to sale
government created barriers including patents and copyrights
exists when increasing returns to scale provide a large cost advantage to a single firm that produces all of an industrys output
when does a natural monopoly occur?
when increasing returns to scale provide a large cost advantage to having all of an industrys output produced by a single firm
optimal output rule
produce the output level at which the marginal cost of the last unit produced is equal to the market price
average total cost
in a monopoly what is the demand curve?
the market demand curve
can a monopolist affect the demand curve?
increase in production in a monopoly can have one of what two effects?
one more unit is sold increasing total revenue by the price at which the unit is sold
in order to sell the last unit the monopolist must cut the market price on all units sold this decreases total revenue
where does the marginal revenue curve of a firm with market power always lie?
below its demand curve
a profit-maximizing monopolist chooses the output level at which marginal cost is equal to what?
at low levels of outout the price quantity effect is _______ than the price effect.
at high levels of outout the price effect is stronger than the _____ effect.
to maximize profits what two things should you compare?
marginal cost to marginal revenue
if mr exceeds mc then what should the firm do to make a maximize the profit?
if mr is less than mc what should the firm do to maximize profit?
how does a momopoly compare to competitive industry?
government policies used to prevent of eliminate monopolies
are monopolies efficient of inefficient?
what can public policy do about monopolies?
public ownership= often poorly run; goods supplied by government or firm owned by government
price regulation=US uses
a limiation on the price a monopolist is allowed to charge
charge all concumers the same price
charging different prices to different consumers for the same good
it is profit-maximizing to charge _____ prices to low-elasticity consumers and _____ prices to high elasticity ones.
perfect price discrimination
when a monopolist chargers each consumer his willingness to par
never completely possible
techniques to get close to perfect price discrimination
advance purchase restrictions
four types of market structure
what is the key difference between a monopoly and a perfectly competitive industry?
a single perfectly competitive firm faces horizontal demand curve but a monopolist faces a downward sloping curve
econ chapter 14
economics krugman and wells chapterr 14 study cards