econ chapter 14

  1. monopoly
    controlled by a monopolist
  2. monopolist
    a firm that is the only producer of a good that has no close substitutes
  3. market power
    the ability of a monopolist to raise its price above the competitve level by reducing output
  4. barrier to entry
    something that prevents other firms from enterying an industry
  5. what would cause a barrier to entry?
    • control of natural resources or inputs
    • increasing returns to sale
    • technological superiority
    • government created barriers including patents and copyrights
  6. natural monopoly
    exists when increasing returns to scale provide a large cost advantage to a single firm that produces all of an industrys output
  7. 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
  8. optimal output rule
    • mr=mc
    • produce the output level at which the marginal cost of the last unit produced is equal to the market price
  9. atc
    average total cost
  10. mr
    marginal revenue
  11. mc
    marginal cost
  12. in a monopoly what is the demand curve?
    the market demand curve
  13. can a monopolist affect the demand curve?
  14. increase in production in a monopoly can have one of what two effects?
    • quantitiy effect
    • price effect
  15. quantity effect
    one more unit is sold increasing total revenue by the price at which the unit is sold
  16. price effect
    in order to sell the last unit the monopolist must cut the market price on all units sold this decreases total revenue
  17. where does the marginal revenue curve of a firm with market power always lie?
    below its demand curve
  18. a profit-maximizing monopolist chooses the output level at which marginal cost is equal to what?
    marginal revenue
  19. at low levels of outout the price quantity effect is _______ than the price effect.
  20. at high levels of outout the price effect is stronger than the _____ effect.
  21. to maximize profits what two things should you compare?
    marginal cost to marginal revenue
  22. if mr exceeds mc then what should the firm do to make a maximize the profit?
    produce more
  23. if mr is less than mc what should the firm do to maximize profit?
    produce less
  24. how does a momopoly compare to competitive industry?
    • produce less
    • higher prices
    • earns profit
  25. anti-trust policy
    government policies used to prevent of eliminate monopolies
  26. are monopolies efficient of inefficient?
  27. 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
  28. price regulation
    a limiation on the price a monopolist is allowed to charge
  29. single-price monopolist
    charge all concumers the same price
  30. price disccrimination
    charging different prices to different consumers for the same good
  31. it is profit-maximizing to charge _____ prices to low-elasticity consumers and _____ prices to high elasticity ones.
    • higher
    • lower
  32. perfect price discrimination
    • when a monopolist chargers each consumer his willingness to par
    • never completely possible
  33. techniques to get close to perfect price discrimination
    • advance purchase restrictions
    • volume discounts
    • two-part tarriffs
  34. four types of market structure
    • monopoly
    • oligopoly
    • monopolistic competition
    • perfect competition
  35. 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
Card Set
econ chapter 14
economics krugman and wells chapterr 14 study cards