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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

first mover advantage

if you're the first mover and you make a commitment it is often seen as credible so have the advantage and achieve goals