Ch 15 Monopoly – Flashcards
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Monopoly Definition
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a firm that is the sole seller of a product without close substitutes
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characteristics of a monopoly
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1. single firm industry 2. a price maker 3. there are barriers to entry 4. unique product
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causes of monopoly
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barriers to entry
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what are the sources of barriers to entry?
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1. single firm owns a key resource 2. the government gives a firm the exclusive right to a product 3. Natural monopoly
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What is a natural monopoly
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a single firm that can produce the entire market quantity at a lower cost than could several firms
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shape of the demand curve in a monopoly
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downward sloping
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where is the profit maximizing output?
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where MR=MC
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condition for a profit-maximizing monopoly,
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P>MR=MC
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Comparing a monopoly and a competitive firm
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a monopoly charges higher prices and produces lower output than a competitive firm; therefore, it is inefficient and causes a deadweight loss.
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what is the condition for a socially efficient level of output?
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the intersection of MC and D curves
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Price discrimination definition
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selling the same good at different prices to different buyers
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requirements for price discrimination
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firm must have some market power and separate customers based on their willingness to pay
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MR of a perfectly price discriminating monopolist
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price = MR
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TR of a perfectly price discriminating firm
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each unit sold adds price to TR
