Week 7 Flashcards
(14 cards)
Monopoly features
High barriers to entry
Profit Maximizing Quantity
MR hits MC but the price is where the demand line hits
To find total costs
Up to the ATC, whatever is above that is profit
Revenue Maximising Quantity
Marginal Revenue line hits zero; when marginal revenue is going down but is still a positive that means total revenue is going up and when marginal revenue hits zero that means total revenue is at a max
Elastic and Inelastic range
Elastic is where MR is positive and Inelastic is MR is negative
Monopoly produces deadweight loss
Because producers want to produce where mr=mc but demand is higher
What happens if theres per unit per tax
Shift marginal cost to go up, quantity go down, price goes up
What are the three barriers to entry
Monopoly Resources: Key resource owned by a single firm
Exclusive right: Government gives single firm exclusive right to produce some good
Single Producer more efficient: the costs of production make a single producer more efficient than a large number of producers
Natural Monopoly
An industry is a natural monopoly when a single firm can supply a good or service at a smaller cost than two or more firms
A natural monopoly arises when there are economies of scale over the relevant range of output
Monopolys Revenue
When monopoly drops the price to sell a unit, revenue received also decreases
Price =?
Ar > MR
The Efficient level of Output
By restricting supply below the efficient quantity, the monopolist can push prices higher and increase their profits.
Deadweight loss
Wedge placed between consumers willingness to pay and the producer’s cost
Perfect Price discrimination
It can increase monopolist’s profit and decrease deadweight loss
