Chapter 10

Question 1

What are the three economic wastes of a monopolies

Answer 1

1. Deadweight Loss
2. X-inefficiency
3. Rent seeking

Question 2

X-inefficiency

Answer 2

-monopolists are wasteful because there is no competition to keep the cost efficient

-ATC may be higher than the lowest possible costs

-human nature to slack when no one is pushing them

Question 3

Rent Seeking

Answer 3

-monopolists profit box draw other firms to the industry

-monopolists spend portion of profit is used to prevent entrants entering market

-entrants spend resources trying to attain profit box

-profit box could represent a lower bound of a waste to society

Question 4

Policy in monopolies

Answer 4

1. Control behaviour by prohibiting predatory pricing, resale price maintenance, tied sales, exclusive dealing
2. regulating price, produce at Qc and charge at Pc DWL = 0

Question 5

two problems with regulating price

Answer 5

1. Information problems (regulator does not know MC)
2. Possible that P = MC has negative profits

Question 6

Second best solution for regulating price

Answer 6

force monopolists to produce where demand interests ATC, where profits are 0, dead-weight loss is more than 0

Question 7

When does price discrimination occur

Answer 7

Where different consumers are charged different prices for the same goods or service where differences are not explained in marginal cost

Question 8

First degree price discrimination

Answer 8

-charge each consumer a different price
(perfect price discrimination)
(firm captures all consumer surplus)
DWL = 0

Question 9

Second degree price discrimination

Answer 9

menu pricing, block print (also called product versioning)

-charge different prices depending on the quantity.

-Customers buying larger quantities get lower prices.

-firms use this when they can not differentiate between customers

Question 10

Third degree price discrimination

Answer 10

(group pricing)

-charge a different price for groups of consumers with different income elasticity (like countries)

Question 11

what is the purpose for price discrimination

Answer 11

to maximize profits

Question 12

What are the three necessary conditions for price discrimination

Answer 12

1. Firms must have some power over price
2. Firms must be able to identify different consumer groups
3. Firm must be able to prevent arbitrage

Question 13

Arbitrage

Answer 13

buying at a low price and re-selling below the high price

Question 14

3 Monopolistic Competition Characteristics

Answer 14

1. Many firms
2. Easy entry/exit
3. Firms compete by selling similar but differentiated products

Question 15

Four factors of product differentiation

Answer 15

1. Product attributes (function, quality)
2. Service
3. Location
4. Brand Names / Packaging

Question 16

individual firms will face demand curves that are ______

Answer 16

more elastic

Question 17

where does monopolistic maximize competition in the short run

Answer 17

where MR = MC

Question 18

Learn monopolistic competition

Question 19

Hotellings boardwalk

Answer 19

understand

Question 20

Three characteristics of Oligopolies

Answer 20

1. Market demanded by small number of firms
2. Some entry barriers
3. Firms are mutually interdependent (companies decisions will affect the others decisions)

Question 21

Dilemma of Oligopoly

Answer 21

Firms know the will make more money by cooperating, they also know a single firm can make more money by cheating

Question 22

Nash equilibrium

Answer 22

When each player’s beat strategy is to maintain its present behaviour when given the present behaviour of the other player

Question 23

6 factors affecting competition or cooperation

Answer 23

1. Tendency to cooperate is greater for smaller number of sellers than large numbers
2. Tendency to cooperate is greater for producers of s similar products than producers of differentiated products
3. Tendency to cooperate is greater in growing market than contracting markets
4. Tendency to cooperate is greater when industry contains a dominant firm rather than a group of equal competitors
5. Tendency to cooperate is greater when barrier to entry of new firms are greater

Question 24

Firm concentration ratio

Answer 24

percentage of value of sales by four largest firms

Question 25

low concentration ratio by firms indicates

Answer 25

high degree of competitiveness

Question 26

high concentration rate by firms indicates

Answer 26

low degree of competitiveness

Question 27

Understand HHI, sequential games

Question 28

What four things constitute the factors market?

Answer 28

Land, labour, capital, entrepreneurship

Question 29

a firms demand for a factor is derived from ________

Answer 29

the demand of what it produces

Question 30

Marginal Product

Answer 30

Change in total product / change in one input (Delta Q/ Delta L)

Question 31

Marginal Revenue Product

Answer 31

Change in total revenue resulting from in the incremental increase of one input

Question 32

Marginal Factor Cost

Answer 32

Change in Total Cost / Change in the use of an input

Question 33

The hiring rule

Answer 33

A firm should continue to hire until MFC = MRP

Question 34

Explanations in differences in wages across genders

Answer 34

1. Women tend to work in occupations that pay lower
2. Other issues, productivity
3. Gender discrimination