Microeconomics: Chapter 16 Monopoly

3 Barriers to enter a monopolized market:

Costs of production make one producer more efficient

Gov give the right to produce to one firm

Key resource owned by one firm

What is a natural monopoly?

firm where ATC declines to the quantity that could supply the whole market

Producing an additional unit, marginal revenue is…

below the price because price effect is greater than output effect

Monopolies produce when…

marginal costs = marginal revenue

Price in monopolies exceeds/equals MC?

Price exceeds MC in monopolies

Monopolies choose price at the point…

The point on the demand curve that corresponds to the quantity where MR=MC

Profit is the area between…

Price*Quantity & ATC*Quantity

Profit = Q(P-ATC)

On a graph, deadweight loss is:

the triangle formed by the point where D & MC intersect and the quantity produced line

On a graph, where is the efficient price located? (competitive market production point)

where D intersects MC

Why are monopolies ineeficient?

They produce a quantity less that equilibrium

Compared to competitive markets, monopolies produce more/less at a higher/lower price?

They produce less at a higher price

What is a monopolies supply curve?

it doesn’t exist

If gov forces monopoly to produce at efficient price point and quantity, what will happen?

Monopoly will exit the market

What does an antitrust law do?

increases competition in a market by breaking up large firms and preventing them from merging and monopolizing.

Is public ownership of a natural monopoly efficient?

No because the market would still be running at a loss/deficit

What are characteristics of price discrimination?

Buyers are charged more based on their willingness to pay

increases a monopoly’s profits

seller has to be able to separate buyers by their willingness to pay

What should a monopoly do if MR is greater than MC?

They should increase production until the two are equal to maximize profits