Monopoly

studied byStudied by 0 people
0.0(0)
learn
LearnA personalized and smart learning plan
exam
Practice TestTake a test on your terms and definitions
spaced repetition
Spaced RepetitionScientifically backed study method
heart puzzle
Matching GameHow quick can you match all your cards?
flashcards
FlashcardsStudy terms and definitions

1 / 23

encourage image

There's no tags or description

Looks like no one added any tags here yet for you.

24 Terms

1

When does monopoly occur?

Monopoly occurs when there is one large seller of a particular good or service. There is no competition whatsoever in a monopoly.

Few firms are pure monopolists in the real world. This often results from regulation.

However, we can find near-examples such as Amazon, Google, and Facebook.

New cards
2

What is market concentration?

Market concentration describes the degree to which a small number of firms dominate a market.

High market concentration often results in reduced competition.

New cards
3

Describe the market structure of monoploy

Number of sellers = one large seller

Barriers to entry = high

Product substitutability = differentiated

New cards
4

Explain a firm’s revenue

A firm’s revenue is: R = pq

A firm’s marginal revenue, MR, is the change in its revenue from selling one more unit. MR = DR / Dq

If the firm sells exactly one more unit,

Dq = 1, its marginal revenue is MR DR .

We know that for a competitive firm, MR = ΔTR = P* - does this hold for a monopolist?

New cards
5

Explain how marginal revenue and price differs from a competitive firm

The marginal revenue of a monopoly differs from that of a competitive firm because the monopoly faces a downward-sloping demand curve unlike the competitive firm.

Thus, the monopoly’s marginal revenue curve lies below the demand curve at every positive quantity.

For a competitive firm, P=MR (both are represented by a horizontal line).

For a monopoly, P>MR (represented by two separate downward-sloping lines).

<p class="MsoListParagraphCxSpFirst">The marginal revenue of a monopoly differs from that of a competitive firm because the monopoly faces a downward-sloping demand curve unlike the competitive firm.</p><p class="MsoListParagraphCxSpMiddle">Thus, the monopoly’s marginal revenue curve lies below the demand curve at every positive quantity.</p><p class="MsoListParagraphCxSpLast">For a competitive firm, P=MR (both are represented by a horizontal line).</p><p><span style="font-family: Aptos, sans-serif">For a monopoly, P&gt;MR (represented by two separate downward-sloping lines).</span></p>
New cards
6

How do you derive the marginal revenue curve as a function of P?

Decompose the change in TR due to selling one more unit into 2 parts:

1) For a monopoly to increase its output by ΔQ, the monopoly lowers its price per unit by (the slope of the demand curve).

By lowering its price, the monopoly loses: (change in p/change in Q) x Q

on the Q units it originally sold at the higher price,

 

2) But it earns an additional p on the extra output.

 Thus, the monopoly’s marginal revenue is: MR = p + change in p/change in Q x Q

Demand curve slopes downward

Delta P/Delta Q < 0

The second term of the RHS < 0

MR<P

New cards
7

What is PED?

Basic def: PED measures the percentage change in quantity demanded in response to a percentage change in price.

2nd method: Transformed formula: two components:

<p>Basic def: PED measures the percentage change in quantity demanded in response to a percentage change in price.</p><p></p><p>2nd method: Transformed formula: two components: </p><p></p><p></p>
New cards
8
New cards
9
New cards
10
New cards
11
New cards
12
New cards
13
New cards
14
New cards
15
New cards
16
New cards
17
New cards
18
New cards
19
New cards
20
New cards
21
New cards
22
New cards
23
New cards
24
New cards

Explore top notes

note Note
studied byStudied by 18 people
899 days ago
5.0(1)
note Note
studied byStudied by 32 people
794 days ago
5.0(1)
note Note
studied byStudied by 1 person
28 days ago
5.0(1)
note Note
studied byStudied by 103 people
856 days ago
5.0(1)
note Note
studied byStudied by 3 people
761 days ago
5.0(1)
note Note
studied byStudied by 10 people
693 days ago
4.5(2)
note Note
studied byStudied by 39 people
953 days ago
5.0(1)
note Note
studied byStudied by 11 people
776 days ago
5.0(1)

Explore top flashcards

flashcards Flashcard (33)
studied byStudied by 3 people
792 days ago
5.0(1)
flashcards Flashcard (62)
studied byStudied by 5 people
765 days ago
5.0(1)
flashcards Flashcard (82)
studied byStudied by 10 people
56 days ago
5.0(1)
flashcards Flashcard (40)
studied byStudied by 5 people
171 days ago
5.0(1)
flashcards Flashcard (20)
studied byStudied by 115 people
507 days ago
5.0(1)
flashcards Flashcard (25)
studied byStudied by 12 people
468 days ago
5.0(1)
flashcards Flashcard (25)
studied byStudied by 2 people
661 days ago
5.0(1)
flashcards Flashcard (38)
studied byStudied by 38 people
8 days ago
5.0(1)
robot