Monopoly (25)

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34 Terms

1

What is a natural monopoly?

Organically formed, comes from large economies of scale

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2

How is price determined by a monopoly?

Based on the amount supplied by a monopoly

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3

At what MC do monopolies produce?

MC = MR

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4

What is the formula for revenue

p(y) times y

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5

What is price elasticity for a monopoly

e < 0

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6

How does a monopolist act if elasticity is perfectly inelastic

As a competitive market

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7

What is the formula for MR that accounts for price elasticity

MR = P(Y) (1  + 1/E)

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8

What is that formula also equal to?

K , the monopolist's marginal cost of production at a constant $k

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9


What is the relationship between MR and p for monopolies

MR < p

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10

SInce p decreases as y increases, MR

Decreases as y increases

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11

Why do monopolists sell less than a competitive market

Selling too much means revenue declines

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12

What is markup pricing

Outprice price is the marginal cost of production plus the markup

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13

How to find the markup; formula?

Pm/Pc which turns to 1 / (1 + 1/e)

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14

What elasticity causes a smaller markup

Elastic, because any large markup and people will sub away

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15

What elasticity do monopolies not operate between

-1 and 0

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16

How are monopolies regulated?

With taxes

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17

What is the cost function accounting for quantity tax

c(y) = (c + t)Y

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18

What determines the extent of the tax burdened by consumers?

Elasticity

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19

What effect does a tax have on output and price

Less output, higher prices

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20

What function does the tax get added onto to find Pt and Yt

The cost function

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21

What is the change in price after a tax for a linear demand function?

Delta p = t/2

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22

What happens to the MC with a lump sum tax

It stays the same

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23

Will firms produce with a large lump sum tax

As long as profits are still 0 or positive after it is subtracted

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24

Do governments prefer quantity tax or lump sum tax

Whichever makes them the most profit after output is adjusted to the tax

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25

What is a Pareto efficient market

When maximum possible total gains to trade are made; nothing else can be done unless one party loses out

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26

In a competitive market, when does pareto efficiency occur?

When P = MC

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27

Who receives most of the welfare there?

Consumers

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28

In a monopoly, what signifies pareto inefficiency

Presence of deadweight loss

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29

Who receives most of the welfare here?

The monopoly because there is decreasing consumer surplus

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30

What is deadweight loss

Lost transactions that would take place in a competitive market but don’t in a monopoly

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31

Would monopolies ever produce just a few items?

Fixed costs are too high, better to produce more so they’ll decrease (not too much tho)

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32

If profits are 0, will firms enter or exit the market

All firms are indifferent

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33

Is P = MC or MR = MC better for consumers?

P = MC because prices will be lower

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34

Can a natural monopoly be forced to use MC pricing?

No because the firm will exit which destroys the market

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