Flashcards in Exam 3 Deck (43):

1

## monopoly

### -industry with a single seller that sells a good for which there are no close substitutes e.g. USPS

2

## in monopolies produce as long as

### MR>MC

3

## monopolies - profit maximization

###
MC=MR

-will charge the highest P willing to pay

-take that Q then go all the way up to the demand curve to find the price

4

## total costs in monopolies

### P where the Q intersects the ATC curve

5

## monopolies' profits

###
-might not exist

-when do exist will not be competed away

6

## monopolies- price is _____ to MR

### greater than MR

7

## MR curve (mathematically)

###
2 times the slope of the inverse demand curve

-keep y-intercept the same as in inverse D curve

8

## Lerner Index equation

### (P-MC/P)=(-1/Ed)

9

## Lerner Index definition

###
-measure of monopoly power

-% by which its MR (P) exceeded MC

-the higher, the more power

10

## slope=

### y intercept/x intercept

11

## price taker

###
-no market power

- competitive

12

## price maker

###
-does not have market power

-monopoly

13

## price discrimination

###
-the practice of charging different prices to difference customers for the same product

- 3 degrees

14

## perfect price discrimination (1st degree)

###
-charge every consumer the highest price they are willing to pay

-no CS

-no DWL

15

## 1st degree price discrimination (monopoly)

### CS=A PS=B DWL=C

16

## 1st degree price discrimination (competition)

### CS=A+B+C PS=0 DWL=0

17

## rent seeking

### -try to obtain a monopoly position for yourself so you can get the rents

18

## in perfect price discrimination the MR

### =D curve

19

## 3rd degree

###
-you put ppl into different markets and charge a different price per market (segmenting)

-charge a lower price w/markets with greater elasticity b/c Q increases by a bigger % and raises TR

20

## to get customers to reveal themselves

### through their elasticities of demand

21

## price sensitive get what price? why?

### because they have a higher Ed

22

## segmented profits

### exceed those of an unsegmented market

23

## How to find P and Q for both markets without segmenting

###
1. convert to regular demand curve

2. add the regular demand curves together

3. convert back to inverse and find MR

4. set MR=MC to find P

5. plug Q into the total demand curve

24

## How to find P and Q and profits for each market with segmenting

###
1. take inverse demand curve

2. find MR curve

3. set MR=MC

4. solve for P

5. get Q

5. P-MC

6. take (P-MC)(profit max. Q)

25

## 2nd degree price discrimination

###
-can't tell consumer's demand

-Q discounts

-versioning

-coupons

26

## Quantity discounts

###
-with lower elasticity of demand, can charge higher price cause so seldomly participate that commission not a big deal

-higher elasticity of demand, charge lower price cause participate often and are sensitive to price

27

## versioning/ price cut margins

###
-a firm offers diff. product options designed to attract diff. kinds of customers

- will buy what gives them the most surplus

28

## neg. correlating bundling

### then bundling will allow company to raise revenues and profits

29

## pos. correlating bundling

### bundling doesn't impact TR and profits

30

## simultaneous games

### the participants choose their actions at the same time with out knowing each others actions

31

## repeated games

### series of simultaneous games among the same set of actors

32

## sequential games

### players take turns making decisions

33

## prisoner's dilemma

### any game where if the players do what is in their own self interest they end up worse off

34

## games of pure strategy

### a player chooses an action w/100% certainty

35

## mixed strategy

### player chooses a strategy randomly

36

## maximin strategy

### used to minimize loss

37

## use what to solve repeated games?

### backward induction- start in the last round and determine the outcome then work your way back to the starting point

38

## if there is a definite stopping point in a repeated game then...

### there will be no cooperation

39

## grim trigger strategy

### start out cooperating but if the other player ever failts to cooperate, will punish the player until the end of time no matter what the other player does

40

## discount rate

###
how you value the future

-closer to 1=more patient

-closer to 0=more impatient

41

## tit for tat

### do what the other person did to you--willing to forgive

42

## how to solve a sequential game

###
use backward induction

-determine the outcome for the second chooser

-then choose the best outcome for the 1st chooser based on the 2nd chooser's actions

43