Microeconomics - Chapter 12: Monopoly

This set of vocabulary flashcards covers key concepts from Chapter 12 on Monopoly, including market power, entry barriers, price discrimination types, and government regulatory policies.

Monopoly

An extreme market structure with a single seller of a good or service with no close substitutes.

Price maker

A seller that can set the price of a good because it has market power.

Market power

The ability of a firm to set the price of a good.

Barriers to entry

Circumstances that prevent potential competitors from entering a market.

Legal market power

Market power obtained through government protection, such as patents and copyrights.

Patent

A government-granted permission to be the sole producer and seller of a good.

Copyright

Government-granted rights to the creator of literary or artistic work.

Natural market power

Occurs when a single firm can provide a good at a lower cost than two or more firms can.

Key resources

Resources that are essential for the production of a good or service.

Network externalities

Occurs when a product’s value increases as more consumers use it, such as eBay or Facebook.

Natural monopoly

A firm that emerges because it enjoys economies of scale over a very large range of output, typically involving high fixed costs.

Quantity effect

The increase in revenue from selling more units of a product.

Price effect

The decrease in revenue resulting from the lower price a monopolist must charge to sell additional units.

Monopoly Profit Maximization Rule

The condition where a monopolist produces a quantity such that $MR = MC$.

Monopoly Profit Formula

The mathematical representation of profit calculated as $\text{Profit} = Q \times (P - ATC)$.

Deadweight loss

The loss in social surplus that results when a monopolist produces a lower quantity and charges a higher price than under perfect competition.

Price discrimination

Charging different customers different prices for the same good or service when there are no differences in production costs.

First-degree (perfect) price discrimination

When each consumer is charged the maximum amount they are willing to pay, resulting in no consumer surplus.

Second-degree price discrimination

When consumers are charged different prices based on characteristics of the purchase, such as last-minute hotel rooms or bulk blocks.

Third-degree price discrimination

When consumers are charged different prices based on the characteristics of the customer, such as student or senior citizen discounts.

Antitrust policy

Government policies that try to prevent anti-competitive pricing, low quantities, and deadweight loss from dominating markets.

Sherman Act (1890)

Legislation that prohibited the restraint of trade and monopoly markets.

Efficient (socially-optimal) price

A regulated price set where price equals marginal cost, or $P = MC$.

Fair-returns price

A regulated price set where price equals average total cost, or $P = ATC$, resulting in zero economic profit.