Monopoly

Question 1

A pure monopoly exists when: (3)

Answer 1

• There is only one seller in the market
• seller has considerable control over price(price searcher)
• There must be barriers

Question 2

Market barriers(5)

Answer 2

1. Economies of scale(natural monopoly)
2. patents(initial developer has exclusive control) and Copyrights
   3.Exclusive control over a nessesary input
3. public franchise:government grants control only to a single firm
4. strategic barriers(firm constructs entry barriers)

Question 3

In a monopoly, the firms demand curve is

Answer 3

the market demand curve

Question 4

Economic wastes of Monopoly exception argument

Answer 4

-entry barriers can be circumvented by technology change
-monopoly profits induce innovation

Question 5

Wastes of monopoly

Answer 5

-deadweight loss, loss of allocative efficiency
-X-efficiency:no competition to keep cost efficient
-Rent seeking:monopolists and firms waste resources trying to circumvent/create entry barriers

Question 6

First best solution(&its problems)

Answer 6

-force monopolist to change to perfectly competetive price and output
DWL = 0
-problems: 1)Regulator does not know where MC is
2)may impose negative profits

Question 7

Second best solution

Answer 7

force monopolist to operate where all intersects demand
Economic profits = 0
DWL>0

Question 8

Price discrimination

Answer 8

price differences across groups can not be explained by differences in marginal cost

Question 9

First degree price discrimination

Answer 9

Charge each customer a different price, DWL=0
Consumer surplus=0

Question 10

Second degree price discrimination

Answer 10

charge different price based on quantity

Question 11

third degree price descrimination

Answer 11

firm charges a different price to customers depending on a certain attribute