Econ - II Imperfect Competition

What is a monopoly

What types of Imperfect competition are there?

-Monopolies

-Oligopolies

-Monopolistic competition

what causes Monopolies

monopolies arise when Barriers to Entry are to high

What are examples of how Barriers to entry can cause monopolies

-Ownership of a Key Resource

-Government Created Monopolies

-Natural Monopolies

How would Ownership of a key resource cause a Monopoly

When one firm owns a key resource in producing a good its hard for other firms to join the market as they dont have the key resources to make sufficient supply

How would a government Create a monopoly

Governments give rights to supply a product to a single firm ( Patents or copy rights )

What is a Natural Monopoly

when a single firm can supply a good at a lower price than 2 or more firms

What causes natural monopolies

when their are high fixed costs that cause a firms average cost to join the market very high

What is the key difference between a monopoly and a Competitive market

a monopoly can choose any combination of price and quantity (they can change its marginal revenue to anything)

What is the Profit Maximizing output for Monopolies

Marginal Cost = Marginal Revenue

A monopoly can increase profit by increasing supply as long as long as

Marginal cost is lower than Marginal Revenue

If a competitive market is replaced by a a monopoly that had the same marginal cost how would Equilibrium change

Equilibrium would occurred at a lower quantity and a higher price

How could you find a Monopolies Equilibrium on a Graph with the Demand Curve, Marginal Cost Curve, and Marginal Revenue Curve

If you draw a straight line up from the point where the Marginal cost and Revenue curves meet until it hits the demand curve

Do monopolies have an Economic Profit of 0

False

1 multiple choice option

What are the effects of an Monopoly

-Transfer of Consumer Surplus to Producer Surplus

-Reduction in Overall social well being because the monopoly isn't supping at the natural equilibrium price and quantity

What are some ways a government can deal with a monopoly

-Policy

-Regulation

-Public Ownership

What is an example of a government Policy that was put in place to stop Monopolies

Sherman Anti Trust act 1890

What did the Sherman Anti Trust Act do?

Large mergers and acquisitions must be reviewed by the government

-government could split part certain firms which had a monopoly

While a government may allow a monopoly to exist what regulations would a government put on the monopoly to reduce the reduction of social welfare caused by the government

-Monopolies aren't allowed to freely set prices

-Monopolies interest rates are received by the Government

What is Price Discrimination

A strategy where a firm discriminate price based on how highly a customer values a good (providing different options of a good at different prices)

what is the Effect of Price Discrimination

increases monopolies profits but also increases social welfare

What is the biggest difference between Firms in Perfectly competitive markets and firms in Imperfectly competitive markets

firms in an imperfect competitive market can no longer assume that the price and quantity that they set will not affect the market equilibrium

What does the demand curve of a firm with Market power look like

Downward sloping demand curve

even if a firm has Market power why can it not just set what ever price?

they are constrained by a combination of price and demand by the consumer

what is the most common form of imperfect competition

Monopolistic Competition

what monopoly aspects are there in a monopolistic market

-firms products are differentiated

-firms have a downward sloping demand curve and can set price and quantity the same way a monopoly can

what competitive aspects are there n monopolistic markets

-there are no barriers to entry meaning if one firm is making economic profits other firms will join until economic profits falls to 0

what are some characteristics unique to Monopolistic Competition

-because price exceeds marginal cost there is some social inefficiency because of the firms monopolistic incentive to restrict output to make money

-Diversification of products results from firms incentive to make their product different and better which benefits consumers

What is an Oligopoly

A market with only a few firms

what is the result of an Oligopoly

some loss of social welfare but its hard to determine how much, in general the more it acts like a monopoly the worse it is

What is a Cartel

when the few firms in an oligopoly collaborate and affect as a monopoly

Why are Cartels Unstable

because marginal revenue exceeds marginal cost if one of the firms increases supply to the profit maximizing output they will benefit but all the other firms will suffer

What are the 2 reasons why there aren't many Cartels today

-They are illegal in the US

-Firms in an Oligopoly dont trust each other enough to form a cartel