Monopoly Behavior (26)

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35 Terms

1

Whats uniform pricing

Each unit is sold at an equal price for all consumers

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2

First degree price discrimination

Each output is sold at a different price, the buyers WTP

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3

Second degree price discrimination

Bulk discounts, all buyers face same price schedule though

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4

Third degree price discrimination

Based off demand for groups, like students and seniors

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5

What type of price discrimination leaves ZERO consumer surplus

First degree

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6

Which type of price discrimination leaves a pareto efficient market

First degree because there is no deadweight loss

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7

Another name for second degree PD

Nonlinear pricing

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8

How would a monopolist set the right prices to maximize profits for second degree PD

They would have to know the exact WTP of each person

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9

If p1>p2, what does the imply about elasticity of demands

Good 1 is more inelastic

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10

If there are two markets, what is the formula for firm ones profit maximizing MR

MR1(y1) = MC(y1 + y2)

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11

What is revenue for two joint monopolies

R = p1y1 + p2y2

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12

What is the total output for two firms formula

Y = Y1 + y2

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13

What is the profit formula for two monopolies

Pi = P1(y1)y1 + p2(y2)y2 - c(y1 + y2)

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14

For first degree price discrimination, how do you find inverse demand function of two monopolies

Add each demand curve together, then rewrite in terms of p(y)

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15

What shapes production decisions of firms

Production decisions of competitors, each firm has slight “monopoly power”

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16

When is the demand curve flat

If a large number of firms produce identical products

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17

If a firm has exclusive rights to sell a product, what is the benefit?

They can raise price without losing all consumers

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18

What’s a monopolistically competitive market

A few firms that produce differentiated products

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19

What is product differentiation

A firm is making profits, other firms cannot replicate the product exactly so they find it profitable to make a similar but distinctive product

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20

What is the benefit of good product differentiation

Greater monopoly power and higher profits because the demand curve is less elastic

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21

What happens to profits with free entry of firms

Profits of each firm are pushed to zero, significantly lower than monopolies

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22

Are monopolistically competitive markets efficient?

No because prices are too high at p > MC

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23


Do output levels in monopolistic competition minimize average cost?

No, output levels are too low, therefore giving the firm's excess capacity

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24

What is differentiation products by location

Shopping at closest store

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25

Do firms have incentives to change location?

So long as moving increases the number of consumers and therefore profits

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26

What is the equilibrium for two firms

Both at 0.5

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27

What is the equilibrium for three firms

No possible equilibrium, at least one firm wants to change location

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28

Up to what point does a monopoly hire workers / use inputs

Up until MR = MC

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29

What is the formula for MP

deltaY / deltaX

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30

What is the marginal revenue product

The effect on revenue due to the marginal increase in the input

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31

MRP formula for a monopoly

MR x MP = w

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32

For a monopolist, is MR or P greater

P > MR so the monopolist uses less of input X

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33

Up to what point does a competitive firm hire workers / use inputs

MRP = W

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34

MRP formula for a competitive firm

P x MP = w

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35

Why is in no MR for the competitive market

Because in a competitive market, MR = p

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