PHASE 2- Adobe Ch.8: Pure Monopoly Flashcards Preview

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Flashcards in PHASE 2- Adobe Ch.8: Pure Monopoly Deck (54)
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pure monopoly exists when

there is one single seller- no close substititues, firm and industry synonymous, ppl who dont buy product do without it


pure monoply is the price ___



what does it mean to be the price maker

controls total Q supplied and has considerable conrol over price, confronts usual downward sloping product demand curve, change product price by changing Q product it produces


blocked entry

entry baririers that prohoibit frims fro entering industry


four prominent barriers to entry / blocked entry

economies of scale, patents/liscense, ownership/control of essential resources, pricing and other stategic barriers to entry


economies of scale

declining total average cost - when economies of scale are extensive, firm's long run avg cost curve will decline over wide range of output, only a few large firms/or a single firm can achieve low ATC, protects monopoly from competition


patents and licenses

gov creates legal barriers to entry through patents and licensing



exclusive rigt of inventor to use/allow another to use his/her invention provides inventor with monopoly position for life of patent



at national level- federal communications commission licenses only so many radio/tv stations in each geographic area -ie limiting taxicabs allowed in large cities thru license


control of essential inputs

if single firm controls an input essential to production of a given product, that firm will have market power


near monopoly

single firm has bulk of sales in specific market ie. intel


strategic pricing

entry can be blocked by way monopolist - create entry barriers, response to attempts by rivals to enter industry.. slash prices, step up advertising


pure monopoly has

strong barrierse to entry effecivly blocking all potential compeition


somewhat weaker barrierse permit

oligopoly - market structure dominated by a few firms


monoplisitic competition is

enter large number of firms


crucial difference between pure monoplist and a purely competitive seller lies on which side of the market

demand side


purely competitive seller faces

perfect elastic demand at price determined by market s/d, each additional unit sold adds amount of constant product price to firms TR; MR for competitive seller is constant, qual to product price P = MR


pure monopoly in the market

demand curve is market demand curve, downarwad sloping demand curve- increase sales only by charging lower price, MR less than price, MR not equal to output price, Gain minus Loss equals MR


why is MR less than Price

bc lower price of extra unit also applie sto all prior units, each additioal unit of output sold increases TR by amount equal to its ow price less than the sum of the price cuts that apply to all prior units of output


MR is ALWAYS ____ price

less than


MR can be

negative, add revenue from selling one more unit of output isnt big enought o cover loss in revenue due to price reduction for all rprevious units


monopolist's MR curve has ____ slope of straight line demand curve

two times steeper


as output increases, firm's additional revenue ____

drops two times as fast as does price firm can charge consumers


for society where is MB, and where is MB for firm monopoly

D = MB society
MR = MB firm


in a purely competitive market, where is productive efficiency? allocative efficiency? is it efficient

prod efficiency- P =minATC
allocative effic- P=MC
yes efficient, sum of productive and consumer surplus made as large as possible


pure monopoly, where is optimization, efficient or not?

MR = MC rule --> monoplogy maximize profit by producng lower ouptu and charging higher price, not efficient - output is less than required for ahieving min ATC and bc monoplist price exceeds MC


monopoly - profit maximizing rule, P and MR relationship, P and MC relationship, deadweight loss?

MR = MC rule
P greater than MR - reality - D curve lies above
P greater than MC - effect
deadweight loss effect


perfect competition - profit maximizing rule, P and MR relationship, P and MC relationship, deadweight loss?

MR = MC rule
P = MR reality MR. D.AR.P
P = MC effect
no deadweight oss effect


four complications leading to cost differences

economies of scale, x inneficinecy, rent seeking expenditure, technological avance/advantage


economies of scale

where this is extensive market demand may not be suffieincet enough to support large number of competing firms - results in natural monoply