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Monopoly
is a firm that is the sole seller of a product without close substitutes
market power, market power
the key difference between a monopoly firm and a competitive firm is that a monopoly firm has ___________ _______, the ability to influence the market price of the product it sells. A competitive firm has no _____ _______.
barrier to entry- other firms cannot enter the market
what is the main cause of monopolies?
barriers to entry
these are the sources of __________ __________ __________: -a single firm owns a key resource-the govt gives a single frim exclusive right to produce good -natural monopoly: a single firm can produce the entire market Q at a lower cost than could several firms
natural monopoly
...
NO! P DOES NOT = MR
In monopoly, does P = MR?
horizontal
the demand curve for a competitive firm is _____________ at the market price -the firm can increase Q without lowering P
slopes downward
a monopolist is the only seller, so it faces the market demand curve and it _____ ______. -to sell a larger Q, the firm must reduce P -thus, MR doesn't = P
beneath
on a graph, MR is always ____ demand curve (P)
MR=MC
no matter what type of firm maxmizing profti always is where _________ = ________
output effect
higher output raises revenue
price effect
lower price reduces revenue
yes
could MR even be negative if the price effect exceeds the output effect?
could MR even be negative if the price effect exceeds the output effect?
for monopolists to find maximizing profit on a graph you find where MR=MC and then see where that points hits the demand curve and that's the price they charge. the highest price consumers are willing to pay for the quantity
monopolist's profit
= (P-ATC) *Q -on a graph draw the rectangle from the profit maximizing point on the demand curve down to where it hits the ATC curve. or for the loss the rectangle from the profit maximizing point of the demand curve up to where it hits the ATC curve
NO!
does a monopoly have an S curve?
Competitive firm
what kind of firm is this? -takes P as given -has a supply curve (its MC curve) that shows how its Q depends on P
Monopoly
what kind of firm is this? -is a "price-maker", not a "price-taker" -Q does not depend on P; rather Q and P are jointly determined by MC, MR and the demand curve -NO SUPPLY CURVE
the market become competitive because generics appear
Patents on new drugs give a temporary monopoly to seller, what happens when the patent expires?
slopes downward
D curve is flat for individual competitive firms but for monopolies, since the monopoly is the whole market the D curve _____ ______
P= MC and total surplus is maximized
in a competitive market equilibrium, P = _____ and total surplus is _____
P > MR = MC exceeds
in a monopoly equilibrium, P > ____= ____ the value to buyers of an additional unit (P) _____ the cost of the resources needed to produce that unit of MC.
increasing competition with antitrust laws
Public policy toward monopolies: -ban some anti competitive practice, allow government to break up monopolies -ex: Sherman antitrust act (1890) -ex: Clayton act (1914)
Regulation
Public policy toward monopolies: -government agencies set the monopolist's price -government may require natural monopolies to set P= MC (called marginal cost pricing); however since MC < ATC at all Q, losses would result -if so, regulators might subsidize the monopolist or set P=AT…
marginal cost pricing
a way of regulation: -government may require natural monopolies to set P= MC; however since MC < ATC at all Q, losses would result
average cost pricing
a way of regulation: - regulators might subsidize the monopolist or set P=ATC for zero economic profit
public ownership
Public policy toward monopolies: _______ _______ is usually less efficient since no profit to motive to minimize cost
do nothing
Public policy toward monopolies: the foregoing polices all have drawbacks, so the best policy may be ____ _____
Public policy toward monopolies
-increasing competition with antitrust laws -regulation -public ownership -do nothing
price discrimination
- selling the same good at different prices to different buyers
what characteristic is used in price discrimination? a firm can increase profi by charging a higher price to buyers with a higher _____
what characteristic is used in price discrimination? a firm can increase profi by charging a higher price to buyers with a higher _____
perfect price discrimination
the monopolist produced the competitive quantity , but charges each buyer with his or her WTP -no dead weight loss, the monopolist captures all the CS as profit
dead weight loss
if the monopolist charges the same price to all buyers it results in ______ ____ ______
no! no firm knows every buyers WTP, so firms divide customers into groups based on some observable trait that is likely related to WTP, such as age
is perfect price discrimination possible in the real world?
examples of price discrimination
-these are examples of.... -movie tickets, airline prices, discount coupons, need-based financial aid, quantity discounts
rare
in the real world, pure monopoly is __________ -yet many firms have market power, due to: -selling a unquie variety of a product -having a large market share and few significant competitors

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