Monopoly Behavior (26)

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