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MICRO - ECON Y2 > Monopoly > Flashcards

Flashcards in Monopoly Deck (21)
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1
Q

What is a Pure Monopoly

A

Single Seller

2
Q

What is the Slope of the Demand Curve in a Monopoly Market?

A

Downward Sloping

3
Q

How can Monopolist alter Price?

A

Adjust Output levels–> Alter Price

4
Q

What are the 2 effects on Revenue if Output Increases by ∆y?

A

Increased y –> Decreased P

  1. Sells More Output - Increased Revenues of p∆y
  2. Decreased P by ∆p - Receives Lower Price on All Output- Including All previous units
5
Q

What is the TE on Revenue of Increased Output by ∆y?

A

∆TR = p∆y + y∆p

6
Q

What is MR?

A

MR = ∆TR / ∆y = p + (∆p/∆y)y

7
Q

How much Steeper is MR than Inverse Demand Curve?

A

2x as steep as Inverse Demand

8
Q

Define Marginal Cost

A

Change in TC as Output Increases
- Slope of TC curve
MC(y) = dc(y) / dy

9
Q

Where is Profit Maximised?

A

MR = MC

10
Q

What does it mean if Own-price Elasticity becomes Less Negative?

A

Market Demand becomes Less Sensitive to Price Change

- More Inelastic

11
Q

If Monopolist Decreases Price- what must it take into account?

A

Effect of Price Reduction on All Units it sells

12
Q

Derive MR in terms of Elasticity

A
MR = p + (∆p/∆y)y
=> MR = p + (∆p/∆y) (y) (p/p) -Multiply by p/p
==> MR = p + (∆p/∆y) (y/p) (p)
- (∆p/∆y) (y/p) = 1/⍷d
MR = p[1 + 1/⍷d]
MR(y) = p(y) [1 + 1/⍷(y)]
13
Q

What part of Demand Curve does Monopolist ALWAYS Operate on?

A

Elastic part of Demand Curve

14
Q

Given MR, Suppose MC = £k/Output unit, what is Profit Max?

A
MR = MC
p(y*) [1 + 1/⍷] = k
=> p(y*) = k / [1 + 1/⍷]
==> p(y*) = MC / [1 + 1/⍷]
As ⍷ Rises to –1 - Monopolist Alters Output to Increase Price
15
Q

Where is the Output Level for a Profit Max Monopolist?

A

Market demand = Own-Price Elasticity - ALWAYS

16
Q

Why does Monopolist choose Output level where Market demand = Own-Price Elasticity?

A

If: p(y) [1 + 1/⍷] = k
–> p(y
) [1 + 1/⍷] > 0
=> 1 + 1/⍷ > 0
==> 1/⍷ > -1 ==> ⍷ < -1

17
Q

How is Monopolist affected by a Quantity Tax?

A

Q.T of £t / Output unit

=> Increased MC by £t - Shifts Up

18
Q

How does Tax affect Output level?

A

Decreases Profit Max. Output Level
–> Increases Market Price + Decreases Input Demands
Q.T is Distortionary

19
Q

What are the Equilibrium effects of a Q.T?

A

Decreased Output Level
Increased Output Price
Decreased Demand for Inputs

20
Q

What is Proportion of Tax paid by Consumer?

A

p(yt) = (k + t)⍷ / 1 + ⍷
Tax Paid by Consumer = p(yt) - p(y*) = [(k + t)⍷ / 1 + ⍷] - [(k)⍷ / (1 + ⍷)]
==> t⍷ / 1 + ⍷
Since ⍷ < -1 => (⍷ / 1 +⍷) > 1 –> Monopolist passes on More than Tax

21
Q

What does a Monopolist cause the Market to become?

A

Pareto Inefficient
Decreased CS + PS
DWL