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chapter 9 monopoly
Terms in this set (21)
when a producer can change the price without losing demand for the product
no close substitutes
significant barriers to entry
barrier to entry
something that prevents new firms from entering and competing in imperfectly competitive industries
types of barriers to entry
1) government franchising or licensing
3)economies of scale
4)ownership of a scarce factor of production
Firms with market power must decide...
how much to produce,
how to produce it
how much to demand in each input market
what price to charge for their output.
Sometimes monopolists are called "price searchers" (as opposed to price takers).
In a monopoly, if a firm wants to choose to produce a higher quantity it must...
lower the price on all units sold because monopolies have a downward sloping demand curve.
In a monopoly, marginal revenue is ___ price (<,>,=)
marginal revenue (equation)
change in total revenue / change in quantity
to maximize profits, monopolists choose the quantity such that
Monopolists are guaranteed to make a profit. True or false
false. Monopolies can be forced to shut down in the short run
Monopolies should continue to produce if
P >/= AVC
Monopolies should shut down if
P < AVC
Why doesn't a monopoly have a supply curve?
it sets both the price and quantity, the supply depends on its own marginal cost curve and demand curve.
Monopolies cause deadweight loss because:
they produce too little
an industry that realizes that they are an economy of scale for a certain product, so they monopolize it
Natural Monopolies exist because of:
economies of scale
charging different prices to different buyers
perfect price discrimination
when a firm charges the maximum amount that buyers are willing to pay for each unit
second degree price discrimination
firms charge different prices based on unobservable consumer attributes
third degree price discrimination
firms charge different prices based on observable consumer attributes
the goal of price discrimination
to divide the consumers in the market into "segments" and charge different prices to each of those segments.
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