Flashcards
Chapter 9
Cards in this deck (20)
- 1Characteristics of a monopolyOne seller
No close substitutes
Extreme barriers to entry
control over price
positive Econ profit in the long run - 2Economies of Scaleindustries w/ very high start-up costs and low marginal costs
Ex. Water treatment - 31) Natural Monopolyfirm can produce at a lower cost than multiple forms; common among utility services
*regulated by government - 42) Patents and Copyrightsprovide incentive for innovation
- 53) Control over significant inputRestrict competition from access to input
Ex. DeBeers Diamond Co owned diamond mines - 6Monopoly Pricing and Output DecisionsMonopolists face the traditional downward-sloping demand curve for their good
- 7To maximize profit monopolists produce where:Marginal Revenue = Marginal Costs
- 8Q*Where MR=MC
- 9P*go up to demand curve from Q*`
- 10Consequences of a MonopolyHigher prices and lower output than perfect competition
Inefficient outcome for society
Rent-Seeking Behavior: lobbying, legal battles
X-Inefficiency: no incentive for efficiency; excessive perks and spending - 11Price Discriminationcharging customers different prices for the same exact good
Based on customers elasticity of demand - 121) Perfect Price Discriminationindividually negotiate w/ every single buyer
e. flea market - 132) 2nd Degree Price Discriminationbuyer gets a lower price when they purchase in bulk
- 143) 3rd Degree Price Discrimination (most common)seller charges different groups of people different prices
ex. student discount, veterans, senior citizens - 15Anti-Trust Policylaws designed to prevent monopolies from occurring
Sherman act of 1890 - 16Herfindahl-Hershman Index (HHI)measures market concentration to judge monopoly power
- 17HHI Formula(S1)^2 + (S2)^2 + (S3)^2 + (Sn)^2
Where Sn = market share of each company - 18HHI < 1,5000industry is unconcentrated
(highly competitive) - 19HHI between 1500-2500moderately concentrated
- 20HHI> 2500highly concentrated
(closer to monopoly)
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- Business/Economics Flashcards on Chapter 9 , created by Kennedy Dean on 21/11/2022.
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- Kennedy Dean
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