Flashcards
Monopoly
Cards in this deck (17)
- 1Price is ALWAYS equal to Marginal Cost in... P = MCPerfect Competition NOT a Monopoly.
(P = MC means economic efficiency!) - 2Marginal Cost ALWAYS hits ATC at its lowest point in what?In Perfect Competition AND a Monopoly.
- 3Is 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. - 4Where would profit for a monopoly be on this graph?
- 5Where would the monopoly firm stop producing?MR = MC is where Q MAX is met.
- 6Where would the monopoly firm set their price?At 'B' because this is where Q MAX meets demand.
- 7Why 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.
- 8What 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.
- 9What is happening in this scenario?The monopoly is making a loss.
- 10Who charges a price above the marginal cost?A monopoly which is inefficient.
- 11Where is CS, PS and DWL in regards to a monopoly?
- 12What is 'Price Discrimination'?Charging customers on their willingness to pay.
- 13What 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 - 14What is 'First Degree Price Discrimination'?Monopolist MUST charge the most anyone is willing to pay for each unit of output.
- 15If a monopoly was using price discrimination, how come it would result in an efficient outcome?This is because there would be no DWL.
- 16What 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.
- 17What is 'Third Degree Price Discrimination'?Putting consumers into groups regarding their responsiveness to price.
Target the groups separately and single price target each.