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Chapter 9- MicroEconomics
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- 1What is a monopoly?Pure monopoly only exist where there is only one seller of a product for which no close substitute is available.
- 2What are the sources of monopoly power?This includes legal barriers, economies of scale, and control over important inputs.
- 3How does the demand curve for a monopolist differ from that of a perfectly competitive firm?It is downward sloping because it is the market demand curve. To produce/sell another unit of output, the firm mist lower its price on all units.
As a result, the marginal revenue curve lies below the demand curve. - 4Why is marginal revenue less than price in a monopoly?There is a downward sloping demand curve. In order to sell more output, the monopolist must accept a lower price on all units sold. This means that the monopolist receives additional revenue from the new unit sold but receives less revenue on all of the units it was previously selling.
- 5What is the relationship between the elasticity of demand and total and marginal revenue?A fall in price leads to an increase in total revenue, making marginal revenue positive. Along the inelastic portion of the demand curve,a fall in price leads to a fall in total revenue, making marginal revenue negative.
- 6How does the monopolist determine profit-maximizing output?At the output where marginal revenue equals marginal costs. Price is set according to the demand for the product at the profit-maximizing output.
- 7How do we know if the monopolist is making a profit or a loss?Comparing price per unit and average total cost at Q*. If P>ATC, there are economics profits. If P
- 8Does monopoly promote inefficiency?Results in smaller output and a higher price than would be the case under perfect competition.
Monopoly does not produce enough output from societies standpoint. - 9Does monopoly hinder innovation?Yes. It may lead to greater concentration of economic power and could hinder innovation.
- 10What is the objective of anti-combine laws?designed to reduce the abuses of monopoly power and push production closer to the social optimum.
- 11What is government regulation?Privately owned monopolies may be allowed to operate. (E.g. a company would not be able to charge any price they want)
- 12What is marginal cost pricing?Sets price equal to marginal cost, where demand intersects marginal cost. This regulation achieves efficiency.
- 13What is average cost pricing?Sets price equal to average total cost, where the demand curve intersects average total costs.
- 14What is price discrimination?When producers charge different prices for the same good or service when no cost differences exist.
- 15Why does price discrimination exist?Result of the profit-maximization motive. If different groups have different demand curves, for good or service, a seller can make more money by charging these different buyers different prices.
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- Fichas sobre Chapter 9- MicroEconomics, creado por mesangster el 15/03/2015.
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