Flashcards in Chapter 4 Concentrated Markets : Theory Of Monopoly Deck (17)
A single seller in an industry.
There are barriers to entry
Define Barriers to entry
Obstacles that stop new firms entering a market
Not reducing costs to their lowest level
Sources of monopoly power
Exploitation of economies of scale + limit pricing
Hight sunk costs
Differentiate their products
Control of essential raw materials
Ownership of rights
Setting a price so low that other firms will not enter the market
Irretrievable costs that occur when a firm exits and industry
A way of distinguishing a product from that of competitors
Setting price at the level of MC
Setting the price at the level of average costs
Reduction in Consumer and producer surplus when output is restricted to less than the optimum level
Where an identical gd or s is sold to different customers at different prices for reasons not associated with costs
Methods of price discrimination
Age of customer
Second degree price discrimination
Occurs when different prices are charged depending on the quantity consumed.
Third degree price discrimination
Involves charging different prices to different groups of people. Market is separated by time or geography.
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