Unit 7 Monopoly

What are 4 barriers to entry that are conducive for the creation of monopolies?

Control of scarce resources
Large increasing returns to scale (natural monopoly)
Technological superiority
Patents and copyrights

What are the relationships between MR, AR and D

AR = D but not MR which is the case with perfect competition

What is the price effect and how is this shown on the curve for total revenue?

To sell the last unit, the monopolist must cut the price of all units, decreasing total revenue
The TR curve is n shaped and decreases when the price effect > the quantity effect

What is the quantity effect and how is this shown on the curve for total revenue?

More units sold increases total revenue
The TR curve is n shaped and initially increases as the quantity effect > the price effect

Graph for a monopoly showing profit and deadweight loss?

Where are producer and producer surplus shown on a monopoly diagram?

Consumer surplus is the area above price and under the demand curve
Producer surplus us the area under the price and above the MC curve

What are the profit maximising price and quantity for monopoly?

Quantity- where MC = MR
Price- the corresponding point on the demand curve

Define minimum efficient scale

The scale of production beyond which no significant economies of scale can be achieved- dependent on the level of fixed and variable factor inputs, market share, and market contestability

What does low MES mean and what does the graph look like

When a firm has little market share, the market is contestable and the firm cannot benefit significantly from large

What does high MES mean and what does the graph look like

High minimum efficient scale: production costs will fall throughout the entire range of output hence MES will continue to increase as output increases, occurring in concentrated markets

What is price discrimination and perfect price discrimination?

Charging different prices to different consumers for the same good on the basis of their elasticity of demand
Perfect means each customer gets an individual price

What are 3 firms price discriminate?

Advance purchase restrictions i.e. the earlier you buy the lower the price, such as with airlines
Volume discounts
Two-part tariffs where the customer pays a flat fee upfront then a per-unit fee on each item purchased

Graphs comparing consumer surplus and welfare in monopoly vs perfect competition

How is price discrimination, where 3 prices are charged, shown on a diagram?

How do you find total cost on a diagram?

Profit maximising Q-point on ATC curve-corresponding price-0

How does a monopolist respond to a decrease in demand?

Decrease price, decrease output

How does a monopolist respond to an increase/decrease in marginal cost?

Increase: increase price, decrease output
Decrease: decrease price, increase output

What happens if the ATC curve > demand?

The firm shuts down

How do you find cost per unit on a diagram?

Find the profit maximising quantity then the corresponding price from the ATC curve

How do you find price per unit on a diagram?

Find the profit maximising quantity then the corresponding price from the demand curve

How do you find profit per unit on a monopoly diagram?

Price per unit - cost per unit
Price from demand curve - price from ATC curve

How does deadweight loss change with price discrimination vs a single price monopolist

A single-price monopolist produces more deadweight loss

In perfect price discrimination, what output will the monopolist produce at>

Quantity where MC = D

In the short run, a monopoly will stop producing if:

AVC > P