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Whats uniform pricing
Each unit is sold at an equal price for all consumers
First degree price discrimination
Each output is sold at a different price, the buyers WTP
Second degree price discrimination
Bulk discounts, all buyers face same price schedule though
Third degree price discrimination
Based off demand for groups, like students and seniors
What type of price discrimination leaves ZERO consumer surplus
First degree
Which type of price discrimination leaves a pareto efficient market
First degree because there is no deadweight loss
Another name for second degree PD
Nonlinear pricing
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
If p1>p2, what does the imply about elasticity of demands
Good 1 is more inelastic
If there are two markets, what is the formula for firm ones profit maximizing MR
MR1(y1) = MC(y1 + y2)
What is revenue for two joint monopolies
R = p1y1 + p2y2
What is the total output for two firms formula
Y = Y1 + y2
What is the profit formula for two monopolies
Pi = P1(y1)y1 + p2(y2)y2 - c(y1 + y2)
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)
What shapes production decisions of firms
Production decisions of competitors, each firm has slight “monopoly power”
When is the demand curve flat
If a large number of firms produce identical products
If a firm has exclusive rights to sell a product, what is the benefit?
They can raise price without losing all consumers
What’s a monopolistically competitive market
A few firms that produce differentiated products
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
What is the benefit of good product differentiation
Greater monopoly power and higher profits because the demand curve is less elastic
What happens to profits with free entry of firms
Profits of each firm are pushed to zero, significantly lower than monopolies
Are monopolistically competitive markets efficient?
No because prices are too high at p > MC
Do output levels in monopolistic competition minimize average cost?
No, output levels are too low, therefore giving the firm's excess capacity
What is differentiation products by location
Shopping at closest store
Do firms have incentives to change location?
So long as moving increases the number of consumers and therefore profits
What is the equilibrium for two firms
Both at 0.5
What is the equilibrium for three firms
No possible equilibrium, at least one firm wants to change location
Up to what point does a monopoly hire workers / use inputs
Up until MR = MC
What is the formula for MP
deltaY / deltaX
What is the marginal revenue product
The effect on revenue due to the marginal increase in the input
MRP formula for a monopoly
MR x MP = w
For a monopolist, is MR or P greater
P > MR so the monopolist uses less of input X
Up to what point does a competitive firm hire workers / use inputs
MRP = W
MRP formula for a competitive firm
P x MP = w
Why is in no MR for the competitive market
Because in a competitive market, MR = p