Chapter 4 Concentrated Markets : Theory Of Monopoly Flashcards Preview

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Flashcards in Chapter 4 Concentrated Markets : Theory Of Monopoly Deck (17)
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Define monopoly

A single seller in an industry.
There are barriers to entry

1

Define Barriers to entry

Obstacles that stop new firms entering a market

2

Define x-inefficient

Not reducing costs to their lowest level

3

Sources of monopoly power

Patent laws
Nationalisation
Exploitation of economies of scale + limit pricing
Hight sunk costs
Differentiate their products
Control of essential raw materials

4

Copyright

Ownership of rights

5

Limit pricing

Setting a price so low that other firms will not enter the market

6

Sunk costs

Irretrievable costs that occur when a firm exits and industry

7

Product differentiation

A way of distinguishing a product from that of competitors

8

MC pricing

Setting price at the level of MC

9

AC pricing

Setting the price at the level of average costs

10

Deadweight loss

Reduction in Consumer and producer surplus when output is restricted to less than the optimum level

11

Price discrimination

Where an identical gd or s is sold to different customers at different prices for reasons not associated with costs

12

Methods of price discrimination

Geographical
Time
Age of customer

13

Second degree price discrimination

Occurs when different prices are charged depending on the quantity consumed.

14

Third degree price discrimination

Involves charging different prices to different groups of people. Market is separated by time or geography.

15

Advantages of price discrimination

Increase profits redistribute income from consumers to producers
Price discrimination is profitable and will provide a higher level of TR to the firm than the best selling price.
Output will be larger without lowering price

16

Disadvantages of price discrimination

Loss of welfare
Inequitable
If profits are reinvested, consumers might derive long run benefits in terms of increased efficiency and lower prices and costs
Lower price might mean consumers can afford the product