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

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Flashcards in PHASE 2- Adobe Ch.8: Pure Monopoly Deck (54):
1

pure monopoly exists when

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

2

pure monoply is the price ___

maker

3

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

4

blocked entry

entry baririers that prohoibit frims fro entering industry

5

four prominent barriers to entry / blocked entry

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

6

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

7

patents and licenses

gov creates legal barriers to entry through patents and licensing

8

patents

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

9

licensing

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

10

control of essential inputs

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

11

near monopoly

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

12

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

13

pure monopoly has

strong barrierse to entry effecivly blocking all potential compeition

14

somewhat weaker barrierse permit

oligopoly - market structure dominated by a few firms

15

monoplisitic competition is

enter large number of firms

16

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

demand side

17

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

18

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

19

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

20

MR is ALWAYS ____ price

less than

21

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

22

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

two times steeper

23

as output increases, firm's additional revenue ____

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

24

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

D = MB society
MR = MB firm

25

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

26

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

27

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

28

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

29

four complications leading to cost differences

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

30

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

31

natural monopoly

start up costs- one time start up cost, marginal cost low

32

network effect

value of production to each user increases as total number of users rise - can drive market toward monopoly

33

x-inefficiency

occurs when firm produces output at higher cost than necessary to produce it, occrus bc of the princiipal agent problem

34

principal agent problem

managers have goals conflicting with cost minimization or low worker motivation/poor supervision

35

what determines price and quanity in competitive market

market s/d

36

rent seeking expenditure

any acitivty designed to transfer income and wealth to particular firm/resource supplier at someone elses/society's expsne- often occurs as monoplies seek to acquire / maintain grov granted monopoly priveligest - lobbying, advertising

37

technological advnace

in LR firms can reduce cost thru new tehchnology - tehnolgical progress/dynamic inefficiency can occur in some monopolist industries but not in others, some monopolies not interest in technological progress, research can help monopoly maintain barriers to entry against new firms

38

MC LOOKS SAME

ALWAYS = IN ALL THE MARKETS

39

TC EQUATION

ATC X Q

40

monopolist profit maximization is when

MC = MR, MR less than price, MR below D curve- monoplisits profit maximization output always below socially efficient level

41

price discrimination

charging different buyers different prices for same g/s - ie senior child discount at movies, rarely reduces competition

42

conditions for price discrimination

monoply power, market segregation, no resale

43

monopoly power -

seller must possess some degree of mnopoly power, ability to control output and price

44

market segregation -

at relativley low post to itself, seller must be able to segregate buyers into distinct classes, each of which has different willingness/ability to pay for product

45

no resale

original prouchaser cant resell p/s; if buyers in low-price segment of market could easily resell product in hgihprice ie transport industry, medical services

46

market segregation

separation of buyers based on difference in price elasticity of demand - consumers with elastic demand: price sensitive - responsive to price discount, consumer w/inelastic demand - not price sensitive: pay more for same good ie. discount coupons

47

price discrimantion occurs in

intern trade- consumers in different countries have different elasticity of demand for products- ie airline tickets, v broadway tickets

48

firms engage in pricce discrimination because it _____

enhances profit - sum of 2 profit rectangles exceeds single profit rectangluar firm would obtain from single monopoly price

49

antitrust laws

when monoply power results in adverse effect upon economy, gov may choose to intervene using antirust laws if gov feels it benefits society more to have monopoly, gov will regulate it

50

antitrust law examples

1890 sherman act, 1914 clayton act

51

1890 sherman act

illegal to monopolize or attempt to monoplize any part of trade/commerce among the several states

52

1914 clayton act

aim to prevent corporations from acquiring shares in competitior if transaction would substantially lessent competition or create a monoploy

53

antitrust laws helped prevent

cartels

54

cartels

coalition of firms colluding to raise prices above competitive levels - also caused harm - by breaking up large companies and discouraging mergers between companies in same industry, antitrust laws help promote competition but also prevent companies from achieving economies of scale