Monopoly

Question 1

What is the trade off faced by monopoly

Answer 1

• Sell more at a lower price
• Sell less at a higher price

Question 2

When does total revenue reach its maximum

Answer 2

When PED=1

Question 3

What is short run equilibrium for monopolist

Answer 3

• Supernormal profits
• Price> averaeg costs, low output high price

Question 4

What is the shutdown condition for a monopolist

Answer 4

Production should cease whenever average revenue is less than average variable cost at every output level

Question 5

How is monopolist different to perfect competition

Answer 5

• Price not equal to MC
• Not min ATC
• Super normal profits

Question 6

Under monopoly what does some of the incidence of a tax or subsidy fall on

Answer 6

The producers

Question 7

Why is there a deadweight loss from monopoly

Answer 7

The don’t produce enough and want to limit supply to keep price up

Question 8

What is the natural monopoly condition

Answer 8

MC < ATC

Question 9

Features of a natural monopoly

Answer 9

• Single producer
• Large infrastructure high sunk costs

Question 10

What is output like in natural monopoly

Answer 10

Sub optimal

Question 11

Explain this maximum price policy for a monopoly

Answer 11

If monopolist wants to restrict output, has to charge pmax, and then after Q1, price/quantity is same as without restriction

Question 12

What is price discrimination

Answer 12

When monopolist charges different prices to different buyers

Question 13

First degree price discrimination explanation

Answer 13

Extracting all consumer surplus from the buyer

Question 14

Second degree price discrimination explanation

Answer 14

• Charging different rates for different quantities

Question 15

Third degree price discrimination explanation

Answer 15

• Charging different prices to buyers in completely separate markets
• Same MC in both markets