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Description
Flashcards by Sophia Lynch, updated more than 1 year ago
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Created by Sophia Lynch
over 5 years ago
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| Question | Answer |
| Price is ALWAYS equal to Marginal Cost in... P = MC | Perfect Competition NOT a Monopoly. (P = MC means economic efficiency!) |
| Marginal Cost ALWAYS hits ATC at its lowest point in what? | In Perfect Competition AND a Monopoly. |
| Is it always better for a Monopoly to meet it's demand? | No, because sometimes producing more can reduce profits. A monopoly should continue producing until MR = MC. |
| Where would profit for a monopoly be on this graph? | |
| Where would the monopoly firm stop producing? | MR = MC is where Q MAX is met. |
| Where would the monopoly firm set their price? | At 'B' because this is where Q MAX meets demand. |
| Why does profit continue to point C? | It does so because MC = MR is still above the ATC curve hence why profit is still generated past this point. |
| What is happening in this scenario? | As the ATC curve has increased and now it equals price. This means the Monopoly is operating at normal profit. |
| What is happening in this scenario? | The monopoly is making a loss. |
| Who charges a price above the marginal cost? | A monopoly which is inefficient. |
| Where is CS, PS and DWL in regards to a monopoly? | |
| What is 'Price Discrimination'? | Charging customers on their willingness to pay. |
| What are the conditions for price discrimination? (3) | 1. The supplier must have market power - be a price maker 2. The firm can distinguish customers on their willingness to pay 3. No arbitrage possibilities - a customer can't buy at a low price and sell at a higher price |
| What is 'First Degree Price Discrimination'? | Monopolist MUST charge the most anyone is willing to pay for each unit of output. |
| If a monopoly was using price discrimination, how come it would result in an efficient outcome? | This is because there would be no DWL. |
| What is 'Second Degree Price Discrimination'? | Charging a higher price for the first unit and then reducing the price with each additional purchase to meet customer's falling MV. |
| What is 'Third Degree Price Discrimination'? | Putting consumers into groups regarding their responsiveness to price. Target the groups separately and single price target each. |
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