Chapter 10: Monopoly

Save this PDF as:
 WORD  PNG  TXT  JPG

Size: px
Start display at page:

Download "Chapter 10: Monopoly"

Transcription

1 Chapter 10: Monopoly Answers to Study Exercise Question 1 a) horizontal; downward sloping b) marginal revenue; marginal cost; equals; is greater than c) greater than d) less than Question 2 a) Total revenue (along the demand curve) is equal to price times quantity demanded. Average revenue is equal to total revenue divided by quantity. So note that average revenue is simply equal to price. The completed table is shown below. Price ($) Quantity Total Revenue ($) Average Revenue ($) Marginal Revenue ($) = /100 = = /125 = /25 = = /150 = /25 = = /175 = 14 50/25 = = /200 = 12 50/25 = = /225 = /25 = = /250 = 8 250/25 = = /275 = 6 350/25 = = /300 = 4 450/25 = 18 b) Marginal revenue is equal to the change in total revenue divided by the change in quantity. In the table above it is shown for a change from one row to the next. For any given quantity, marginal revenue is less than price. This is because in order to sell more output, price on all units must fall. Thus the price on the new units is not equal to marginal revenue we must subtract from this new price the amount that we lose on the previous units by having to reduce their price.

2 2 c) The scale diagram is shown below. Note that the MR curve is plotted at the midpoint of the intervals of quantity demanded. d) The scale diagram is shown below. When TR reaches its maximum, an increase in quantity (and a reduction in price) leads to no change in total revenue. Thus marginal revenue at this point is exactly zero. At larger quantities than this, marginal revenue is negative. Question 3 a) The profit-maximizing quantity is where MR=MC, at 400 games per week. The profitmaximizing price is $60 per game.

3 3 b) The ATC at Q = 400 is $30 per game. c) At the profit-maximizing price and quantity, the profit is given by the rectangle defined by points acef. The total profit is ($30 per game) (400 games per week) = $ per week. Question 4 a) For any firm, profits are maximized at that level of output where marginal revenue equals marginal cost. In the diagram, MR equals MC at output of Q 0. At this level of output, the monopolist charges the price p 4. b) Profits per unit are equal to price minus average total cost. Thus the profits are the rectangle defined by the points p 2 p 4 BC. Since price exceeds average total cost, the monopolist s profits are positive. c) Consumer surplus is the triangle defined by the points p 4 AB. As always, it is the area below the demand curve and above the price line. d) If the industry were instead a perfectly competitive one, equilibrium price and quantity would be determined by the intersection of demand and supply, where the industry supply curve would be given by the summation of the firms MC curves. Thus point D would be the competitive equilibrium, with price p 3 and quantity Q 2. e) Consumer surplus in part (d) would be the triangle defined by points p 3 AD, the area under the demand curve and above the (competitive) price line. Question 5 a) The diagram is shown below. The demand curve and its associated marginal revenue curve are conventional. The monopolist s MC curve is the horizontal axis, since we are told that the firm has no variable costs whatsoever. b) The profit-maximizing output is where MR = MC. But in this case it is where MR equals zero

4 4 since MC is always equal to zero in this example. In the diagram the profit-maximizing output is Q* and the price is p*. c) The marginal value of the water to society is given by the current market price, p*. The marginal cost to society is zero. Thus allocative efficiency is not achieved with this outcome, as is usual in the case of a monopolist. The problem is that producing more than Q* would benefit society by more than it would cost society, and so society as a whole would be better off if the price were lower and quantity were higher. The monopolist (only part of society) is better off to restrict output and raise price. Question 6 a) The two diagrams are shown below. Note that the horizontal scale is different on the two diagrams. The left-hand diagram shows industry output, Q; the right-hand diagram shows the firm s level of output, q. b) If the farmers could successfully collude to restrict output, they would collectively act like a monopolist, choosing output such that MR equals MC. They would collectively produce output equal to Q M and charge price p M. c) In the right-hand diagram, we see that the cartel s restriction of output requires the typical farmer to produce output equal to only q M. (Since Q M is roughly one-half of Q 0, it must be the case that for the typical firm q M is roughly half of q 0, as shown in the right-hand diagram.) The high price of p M means that the typical farmer earns profits given by the light shaded area. d) Yes, it is definitely profitable for each individual farmer to increase its output rather to leave output at q M. Given that all other farmers are restricting their output, the industry price of p M becomes each individual farmer s MR curve. But MC is much lower than p M, so each individual farmer would like to cheat on the agreement and produce more. e) Given the cartel price of p M, each individual farmer has the incentive to increase output all the way to q*, where the cartel price is equal to MC. In this case, profits for the individual cheating farmer would be the sum of the two shaded areas.

5 5 f) If all firms cheated in this way, the industry output would rise significantly and the market price would fall below the cartel price p M. This is exactly why cartels tend to be unstable; all individual cartel members have the incentive to cheat on the agreement, and this cheating essentially eliminates the output-restricting behaviour of the cartel. Question 7 Remember that price differences are discriminatory only if not justified by cost differences. a) It seems clear that airline pricing is discriminatory, discriminating against business travellers who travel mostly during the week and have inelastic demands. b) The price differences between business class and economy class are partly discriminatory but are also partly based on cost differences. For example, the use of 50 percent more space would appear to justify prices 50 percent higher. But space occupied is not the only cost. It would be surprising, however, if there were not a good bit of price discrimination included in business-class fares, reflecting the greater willingness to pay on the part of those having expense accounts, or those who like the snob appeal. c) These price differences are clearly discriminatory. The sales personnel are trying to extract as much consumer surplus as possible from each consumer. For those customers that like to bargain and show that they are prepared to walk out the door and purchase from other firms, a lower price is surely available. But for those who dislike bargaining and want to make a quick purchase, their inelastic demand will result in a higher price being paid. In this case of hurdle pricing, the hurdle that must be cleared in order to get the low price is to actively bargain with the sales personnel. d) We cannot tell without knowing how the costs differ in economics and in law which they probably do to some extent. Given that law graduates can expect higher incomes than economics graduates, one would expect the market solution to be to extract some of the consumer surplus for the suppliers of the training. Question 8 a) With perfect price discrimination, the monopolist would choose output where the demand curve intersects the MC curve, and so would sell 600 games per week. The price on the last game would be $40. b) Without price discrimination, the single-price monopoly output yields consumer surplus given by the triangle cde. c) With perfect price discrimination, the consumer surplus is zero because each unit is sold at the highest price consumers are willing to pay for that unit (the height of the demand curve). d) It is difficult to practise perfect price discrimination because the monopolist would need to know consumers willingness to pay for every unit and would also have to be able to prevent arbitrage. More likely forms of price discrimination might include: different prices for different customer "groups" such as business vs. leisure

6 6 Question 9 different price on different days of the week different prices for different times of the day bulk purchase discounts in which customers buy several games in advance for a lower price per game than is available when customers buy a single game a) The two scale diagrams are shown below. Note that both the vertical and horizontal scales are different on the two diagrams. b) The MR curves are also shown in the diagrams above. Notice that the horizontal intercept of the MR curve is exactly half of that for the demand curve, and that the vertical intercept is the same as that for the demand curve. c) The MC curve is horizontal at $15 in both diagrams. The horizontal MC curve reflects the assumption that the scale of production does not affect Levi s cost for producing an additional unit (though any fixed costs would imply that average costs decline as output rises). d) To solve for the profit-maximizing level of output in each market segment, we must set MR = MC in each segment separately. Since the markets are completely segmented, this problem is just like having two independent monopoly problems, the solution to each being to have MR = MC. Keeping in mind that the MR curve is twice as steep and has half the horizontal intercept as its associated straight-line demand curve, the equations for the two MR curves are: Q D = 75 (0.5)MR E and Q D = 125 2MR A For the European market, we set MR E = 15. This gives Q D = = At this quantity, the price in Europe is given by the demand curve (Q D = 150 p) which gives p* = For the American market, we set MR A =15. This gives Q D = = 95. At this quantity, the price in America is given by the demand curve (Q D = 250 4p) which gives p* =

7 7 e) Own-price elasticity of demand at the profit-maximizing point is given by: η = ( Q/ p) (p/q) In Europe, the measure of elasticity is η E = ( 1) (82.5/67.5) = In America, the measure of elasticity is η A = ( 4) (38.75/95) = Thus American demand is more elastic than European demand and, as we explained in the text, the price in America is therefore lower than the price in Europe. Question 10 a) Arbitrage is prevented because the product (movie viewing) is a service rather than a good; an adult can not purchase a senior ticket and then see the movie because the ticket will easily be checked at the theatre entrance. Without price discrimination, seniors would be worse off and adults would be better off because the single price would probably be between the two discriminatory prices. b) This is hurdle pricing, where the hurdle that must be cleared to get the low price is to wait 6-12 months before buying the book. Impatient people (inelastic demand) will buy the hardcover book at a high price; patient people (elastic demand) will wait and buy the paperback book at a low price. Note that in this case the products are also slightly different, and thus the price differential partly reflects differences in cost (hardcover books are more expensive to produce than paperbacks). It is difficult to determine who would be better off and worse off without price discrimination in this case because there is a difference in the products. If publishers were forced to sell only one type of book (at a single price), then the single price would likely be between the hardcover and paperback prices. c) This is hurdle pricing where the hurdle is to reveal that you are prepared to haggle. Each side of the transaction (buyer and seller) typically tries to extract as much surplus as possible from the other side, and the relative success in haggling determines the final price. It is not clear what a single price (no price discrimination) means in this situation, since most garage sales have only one unit of a large number of goods. However, you might wonder what prices would be like if garagesale operators committed to posting a single price for each good and not haggling. That single posted price would probably be less than what would otherwise be the starting price, but greater than what the final (after haggling) price would be. Thus successful hagglers would be worse off with the single posted price, and poor hagglers would be better off. d) Typical business travellers do not want to stay over the Saturday night whereas typical nonbusiness travellers do. The former have less elastic demands, and so this pricing scheme is aimed at segmenting the two groups of customers. Without price discrimination, the single price would probably be less than the discriminatory business price and greater than the discriminatory nonbusiness price. Thus business travellers would be better off and non-business travellers would be worse off without the price discrimination.

Monopoly. PowerPoint Slides prepared by: Andreea CHIRITESCU Eastern Illinois University

Monopoly. PowerPoint Slides prepared by: Andreea CHIRITESCU Eastern Illinois University 15 Monopoly PowerPoint Slides prepared by: Andreea CHIRITESCU Eastern Illinois University 1 Market power Why Monopolies Arise Alters the relationship between a firm s costs and the selling price Monopoly

More information

Monopoly. 3 Microeconomics LESSON 5. Introduction and Description. Time Required. Materials

Monopoly. 3 Microeconomics LESSON 5. Introduction and Description. Time Required. Materials LESSON 5 Monopoly Introduction and Description Lesson 5 extends the theory of the firm to the model of a Students will see that the profit-maximization rules for the monopoly are the same as they were

More information

A monopoly market structure is one characterized by a single seller of a unique product with no close substitutes.

A monopoly market structure is one characterized by a single seller of a unique product with no close substitutes. These notes provided by Laura Lamb are intended to complement class lectures. The notes are based on chapter 12 of Microeconomics and Behaviour 2 nd Canadian Edition by Frank and Parker (2004). Chapter

More information

ECON 2100 Principles of Microeconomics (Summer 2016) Monopoly

ECON 2100 Principles of Microeconomics (Summer 2016) Monopoly ECON 21 Principles of Microeconomics (Summer 216) Monopoly Relevant readings from the textbook: Mankiw, Ch. 15 Monopoly Suggested problems from the textbook: Chapter 15 Questions for Review (Page 323):

More information

Monopoly. Cost. Average total cost. Quantity of Output

Monopoly. Cost. Average total cost. Quantity of Output While a competitive firm is a price taker, a monopoly firm is a price maker. A firm is considered a monopoly if... it is the sole seller of its product. its product does not have close substitutes. The

More information

Professor Christina Romer SUGGESTED ANSWERS TO PROBLEM SET 2

Professor Christina Romer SUGGESTED ANSWERS TO PROBLEM SET 2 Economics 2 Spring 2016 rofessor Christina Romer rofessor David Romer SUGGESTED ANSWERS TO ROBLEM SET 2 1.a. Recall that the price elasticity of supply is the percentage change in quantity supplied divided

More information

INTERMEDIATE MICROECONOMICS LECTURE 13 - MONOPOLISTIC COMPETITION AND OLIGOPOLY. Monopolistic Competition

INTERMEDIATE MICROECONOMICS LECTURE 13 - MONOPOLISTIC COMPETITION AND OLIGOPOLY. Monopolistic Competition 13-1 INTERMEDIATE MICROECONOMICS LECTURE 13 - MONOPOLISTIC COMPETITION AND OLIGOPOLY Monopolistic Competition Pure monopoly and perfect competition are rare in the real world. Most real-world industries

More information

Other examples of monopoly include Australia Post.

Other examples of monopoly include Australia Post. In this session we will look at monopolies, where there is only one firm in the market with no close substitutes. For example, Microsoft first designed the operating system Windows. As a result of this

More information

AP Microeconomics Review Session #3 Key Terms & Concepts

AP Microeconomics Review Session #3 Key Terms & Concepts The Firm, Profit, and the Costs of Production 1. Explicit vs. implicit costs 2. Short-run vs. long-run decisions 3. Fixed inputs vs. variable inputs 4. Short-run production measures: be able to calculate/graph

More information

Monopoly CHAPTER. Goals. Outcomes

Monopoly CHAPTER. Goals. Outcomes CHAPTER 15 Monopoly Goals in this chapter you will Learn why some markets have only one seller Analyze how a monopoly determines the quantity to produce and the price to charge See how the monopoly s decisions

More information

Basic Monopoly Pricing and Product Strategies

Basic Monopoly Pricing and Product Strategies Chapter 3 Basic Monopoly Pricing and Product Strategies Industrial 1 Introduction A monopolist has the power to set prices Consider how the monopolist exercises this power Focus in this section on a single-product

More information

Economics. Monopoly. N. Gregory Mankiw. Premium PowerPoint Slides by Vance Ginn & Ron Cronovich C H A P T E R P R I N C I P L E S O F

Economics. Monopoly. N. Gregory Mankiw. Premium PowerPoint Slides by Vance Ginn & Ron Cronovich C H A P T E R P R I N C I P L E S O F C H A P T E R Monopoly Economics P R I N C I P L E S O F N. Gregory Mankiw Premium PowerPoint Slides by Vance Ginn & Ron Cronovich 2009 South-Western, a part of Cengage Learning, all rights reserved In

More information

Market Structure & Imperfect Competition

Market Structure & Imperfect Competition In the Name of God Sharif University of Technology Graduate School of Management and Economics Microeconomics (for MBA students) 44111 (1393-94 1 st term) - Group 2 Dr. S. Farshad Fatemi Market Structure

More information

UC Berkeley Haas School of Business Economic Analysis for Business Decisions (EWMBA 201A) Fall 2013

UC Berkeley Haas School of Business Economic Analysis for Business Decisions (EWMBA 201A) Fall 2013 UC Berkeley Haas School of Business Economic Analysis for Business Decisions (EWMBA 201A) Fall 2013 Monopolistic markets and pricing with market power (PR 10.1-10.4 and 11.1-11.4) Module 4 Sep. 20, 2014

More information

Monopoly and How It Arises

Monopoly and How It Arises Monopoly and How It Arises A monopoly is a market: That produces a good or service for which no close substitute exists In which there is one supplier that is protected from competition by a barrier preventing

More information

ECON 102 Kagundu Final Exam (New Material) Practice Exam Solutions

ECON 102 Kagundu Final Exam (New Material) Practice Exam Solutions www.liontutors.com ECON 102 Kagundu Final Exam (New Material) Practice Exam Solutions 1. A A large number of firms will be able to operate in the industry because you only need to produce a small amount

More information

Monopoly. While a competitive firm is a price taker, a monopoly firm is a price maker.

Monopoly. While a competitive firm is a price taker, a monopoly firm is a price maker. Monopoly Monopoly While a competitive firm is a price taker, a monopoly firm is a price maker. Monopoly A firm is considered a monopoly if... it is the sole seller of its product. its product does not

More information

Monopolistic Competition. Chapter 17

Monopolistic Competition. Chapter 17 Monopolistic Competition Chapter 17 The Four Types of Market Structure Number of Firms? Many firms One firm Few firms Differentiated products Type of Products? Identical products Monopoly Oligopoly Monopolistic

More information

BACHELOR OF BUSINESS. Sample FINAL EXAMINATION

BACHELOR OF BUSINESS. Sample FINAL EXAMINATION BACHELOR OF BUSINESS Sample FINAL EXAMINATION Subject Code : ECO201 Subject Name : LABOUR ECONOMICS This examination carries 50% of the total assessment for this subject. Examiner(s) Moderator(s) Joyce

More information

Perfect competition: occurs when none of the individual market participants (ie buyers or sellers) can influence the price of the product.

Perfect competition: occurs when none of the individual market participants (ie buyers or sellers) can influence the price of the product. Perfect Competition In this section of work and the next one we derive the equilibrium positions of firms in order to determine whether or not it is profitable for a firm to produce and, if so, what quantities

More information

EconS 301 Intermediate Microeconomics Review Session #9 Chapter 12: Capturing Surplus

EconS 301 Intermediate Microeconomics Review Session #9 Chapter 12: Capturing Surplus EconS 30 Intermediate Microeconomics Review Session #9 Chapter : Capturing Surplus. With second-degree price discrimination a) The firm tries to price each unit at the consumer s reservation price. b)

More information

Do not open this exam until told to do so. Solution

Do not open this exam until told to do so. Solution Do not open this exam until told to do so. Department of Economics College of Social and Applied Human Sciences K. Annen, Fall 003 Final (Version): Intermediate Microeconomics (ECON30) Solution Final (Version

More information

Commerce 295 Midterm Answers

Commerce 295 Midterm Answers Commerce 295 Midterm Answers October 27, 2010 PART I MULTIPLE CHOICE QUESTIONS Each question has one correct response. Please circle the letter in front of the correct response for each question. There

More information

Short run and long run price and output decisions of a monopoly firm,

Short run and long run price and output decisions of a monopoly firm, 1 Chapter 1-Theory of Monopoly Syllabus-Concept of imperfect competition, Short run and long run price and output decisions of a monopoly firm, Concept of a supply curve under monopoly, comparison of perfect

More information

Syllabus item: 57 Weight: 3

Syllabus item: 57 Weight: 3 1.5 Theory of the firm and its market structures - Monopoly Syllabus item: 57 Weight: 3 Main idea 1 Monopoly: - Only one firm producing the product (Firm = industry) - Barriers to entry or exit exists,

More information

Chapter Summary and Learning Objectives

Chapter Summary and Learning Objectives CHAPTER 11 Firms in Perfectly Competitive Markets Chapter Summary and Learning Objectives 11.1 Perfectly Competitive Markets (pages 369 371) Explain what a perfectly competitive market is and why a perfect

More information

2010 Pearson Education Canada

2010 Pearson Education Canada What Is Perfect Competition? Perfect competition is an industry in which Many firms sell identical products to many buyers. There are no restrictions to entry into the industry. Established firms have

More information

a. Sells a product differentiated from that of its competitors d. produces at the minimum of average total cost in the long run

a. Sells a product differentiated from that of its competitors d. produces at the minimum of average total cost in the long run I. From Seminar Slides: 3, 4, 5, 6. 3. For each of the following characteristics, say whether it describes a perfectly competitive firm (PC), a monopolistically competitive firm (MC), both, or neither.

More information

23 Perfect Competition

23 Perfect Competition 23 Perfect Competition Learning Objectives After you have studied this chapter, you should be able to 1. define price taker, total revenues, marginal revenue, short-run shutdown price, short-run breakeven

More information

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. Exam Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Which of the following statements is correct? A) Consumers have the ability to buy everything

More information

14.01 Principles of Microeconomics, Fall 2007 Chia-Hui Chen November 7, Lecture 22

14.01 Principles of Microeconomics, Fall 2007 Chia-Hui Chen November 7, Lecture 22 Monopoly. Principles of Microeconomics, Fall Chia-Hui Chen November, Lecture Monopoly Outline. Chap : Monopoly. Chap : Shift in Demand and Effect of Tax Monopoly The monopolist is the single supply-side

More information

Lesson-9. Elasticity of Supply and Demand

Lesson-9. Elasticity of Supply and Demand Lesson-9 Elasticity of Supply and Demand Price Elasticity Businesses know that they face demand curves, but rarely do they know what these curves look like. Yet sometimes a business needs to have a good

More information

Unit 4: Imperfect Competition

Unit 4: Imperfect Competition Unit 4: Imperfect Competition 1 Monopoly 2 Characteristics of Monopolies 3 5 Characteristics of a Monopoly 1. Single Seller One Firm controls the vast majority of a market The Firm IS the Industry 2. Unique

More information

Microeconomics LESSON 6 ACTIVITY 40

Microeconomics LESSON 6 ACTIVITY 40 Microeconomics LESSON 6 ACTIVITY 40 Monopolistic Competition Figure 40.1 Monopolistically Competitive Firm in the Short Run MC COSTS/REVENUE (DOLLARS) E D C B A F H K G ATC D 0 MR L M QUANTITY 1. Use Figure

More information

8 Perfect Competition

8 Perfect Competition 8 Perfect Competition CHAPTER 8 PERFECT COMPETITION 167 Figure 8.1 Depending upon the competition and prices offered, a wheat farmer may choose to grow a different crop. (Credit: modification of work by

More information

ECON 311 MICROECONOMICS THEORY I

ECON 311 MICROECONOMICS THEORY I ECON 311 MICROECONOMICS THEORY I Profit Maximisation & Perfect Competition (Short-Run) Dr. F. Kwame Agyire-Tettey Department of Economics Contact Information: fagyire-tettey@ug.edu.gh Session Overview

More information

Assume that both pricing systems for beer are price discrimination. What type of price discrimination is each?

Assume that both pricing systems for beer are price discrimination. What type of price discrimination is each? Microeconomics, Price discrimination, final exam practice problems (The attached PDF file has better formatting.) *Question 1.1: Football Parties At the Harvard-Yale weekend, both football teams have beer

More information

ECON 115. Industrial Organization

ECON 115. Industrial Organization ECON 115 Industrial Organization 1. Tonight is a calculus review. 2. And a review of basic microeconomics. 3. We will do a couple of problems in class. First hour: Calculus Thinking on the margin. Introducing

More information

Chapter 13. Oligopoly and Monopolistic Competition

Chapter 13. Oligopoly and Monopolistic Competition Chapter 13 Oligopoly and Monopolistic Competition Chapter Outline Some Specific Oligopoly Models : Cournot, Bertrand and Stackelberg Competition When There are Increasing Returns to Scale Monopolistic

More information

ECON 300 Homework 7 **This homework is for your own benefit and it not turned in**

ECON 300 Homework 7 **This homework is for your own benefit and it not turned in** ECON300Homework7 **Thishomeworkisforyourownbenefitanditnotturnedin** Chapter11questions:3,9,10,14,16,20,25,26,30,41 Chapter12questions:3,7,13,16,18,39 Chapter13questions:1,3,21,26(partaonly) Answers Chapter11questions:

More information

Eco201 Review questions for chapters Prof. Bill Even ====QUESTIONS FOR CHAPTER 13=============================

Eco201 Review questions for chapters Prof. Bill Even ====QUESTIONS FOR CHAPTER 13============================= Eco201 Review questions for chapters 13-15 Prof. Bill Even ====QUESTIONS FOR CHAPTER 13============================= 1) A monopoly has two key features, which are. A) barriers to entry and close substitutes

More information

1. Supply and demand are the most important concepts in economics.

1. Supply and demand are the most important concepts in economics. Page 1 1. Supply and demand are the most important concepts in economics. 2. Markets and Competition a. Def: Market is a group of buyers and sellers of a particular good or service. P. 66. b. Def: A competitive

More information

A few firms Imperfect Competition Oligopoly. Figure 8.1: Market structures

A few firms Imperfect Competition Oligopoly. Figure 8.1: Market structures 8.1 Setup Monopoly is a single firm producing a particular commodity. It can affect the market by changing the quantity; via the (inverse) demand function p (q). The tradeoff: either sell a lot cheaply,

More information

Monopolistic Markets. Causes of Monopolies

Monopolistic Markets. Causes of Monopolies Monopolistic Markets Causes of Monopolies The causes of monopolization Monoplositic resources Only one firm owns a resource which is crucial for production (e.g. diamond monopol of DeBeers). Monopols created

More information

Monopoly 2. Laugher Curve. The Welfare Loss from Monopoly. The Welfare Loss from Monopoly. Bad things that monopolist do!

Monopoly 2. Laugher Curve. The Welfare Loss from Monopoly. The Welfare Loss from Monopoly. Bad things that monopolist do! Laugher Curve Monopoly 2 Bad things that monopolist do! The First Law of Economics: For every economist, there exists an equal and opposite economist. The Second Law of Economics: They're both wrong. The

More information

COST OF PRODUCTION & THEORY OF THE FIRM

COST OF PRODUCTION & THEORY OF THE FIRM MICROECONOMICS: UNIT III COST OF PRODUCTION & THEORY OF THE FIRM One of the concepts mentioned in both Units I and II was and its components, total cost and total revenue. In this unit, costs and revenue

More information

MONOPOLY. Characteristics

MONOPOLY. Characteristics OBJECTIVES Explain how managers should set price and output when they have market power With monopoly power, the firm s demand curve is the market demand curve. A monopolist is the only seller of a product

More information

Chapter 15 Oligopoly

Chapter 15 Oligopoly Goldwasser AP Microeconomics Chapter 15 Oligopoly BEFORE YOU READ THE CHAPTER Summary This chapter explores oligopoly, a market structure characterized by a few firms producing a product that mayor may

More information

Introduction. Learning Objectives. Learning Objectives. Economics Today Twelfth Edition. Chapter 24 Monopoly

Introduction. Learning Objectives. Learning Objectives. Economics Today Twelfth Edition. Chapter 24 Monopoly Roger LeRoy Miller Economics Today Twelfth Edition Chapter 24 Monopoly Introduction The cement market in Mexico is dominated by a single company that accounts for more than 70 percent of all sales. Why

More information

JANUARY EXAMINATIONS 2008

JANUARY EXAMINATIONS 2008 No. of Pages: (A) 9 No. of Questions: 38 EC1000A micro 2008 JANUARY EXAMINATIONS 2008 Subject Title of Paper ECONOMICS EC1000 MICROECONOMICS Time Allowed Two Hours (2 Hours) Instructions to candidates

More information

ECON 251 Practice Exam 2 Questions from Fall 2013 Exams

ECON 251 Practice Exam 2 Questions from Fall 2013 Exams ECON 251 Practice Exam 2 Questions from Exams Gordon spends all his income on spatulas and mixing bowls. Spatulas cost $4 and mixing bowls cost $12. Gordon has $60 of income and considers both spatulas

More information

iv. The monopolist will receive economic profits as long as price is greater than the average total cost

iv. The monopolist will receive economic profits as long as price is greater than the average total cost Chapter 15: Monopoly (Lecture Outline) -------------------------------------------------------------------------------------------------------------------------- Monopolies have no close competitors and,

More information

MICROECONOMICS CHAPTER 10A/23 PERFECT COMPETITION. Professor Charles Fusi

MICROECONOMICS CHAPTER 10A/23 PERFECT COMPETITION. Professor Charles Fusi MICROECONOMICS CHAPTER 10A/23 PERFECT COMPETITION Professor Charles Fusi Learning Objectives Identify the characteristics of a perfectly competitive market structure Discuss the process by which a perfectly

More information

Chapter 11. Monopoly. I think it s wrong that only one company makes the game Monopoly. Steven Wright

Chapter 11. Monopoly. I think it s wrong that only one company makes the game Monopoly. Steven Wright Chapter 11 Monopoly I think it s wrong that only one company makes the game Monopoly. Steven Wright Chapter 11 Outline 11.1 Monopoly Profit Maximization 11.2 Market Power 11.3 Welfare Effects of Monopoly

More information

Supply in a Competitive Market

Supply in a Competitive Market Supply in a Competitive Market 8 Introduction 8 Chapter Outline 8.1 Market Structures and Perfect Competition in the Short Run 8.2 Profit Maximization in a Perfectly Competitive Market 8.3 Perfect Competition

More information

Econ 001: Midterm 2 (Dr. Stein) Answer Key Nov 13, 2007

Econ 001: Midterm 2 (Dr. Stein) Answer Key Nov 13, 2007 Instructions: Econ 001: Midterm 2 (Dr. Stein) Answer Key Nov 13, 2007 This is a 60-minute examination. Write all answers in the blue books provided. Show all work. Use diagrams where appropriate and label

More information

ECN 3103 INDUSTRIAL ORGANISATION

ECN 3103 INDUSTRIAL ORGANISATION ECN 3103 INDUSTRIAL ORGANISATION 3. Monopoly Mr. Sydney Armstrong Lecturer 1 The University of Guyana 1 Semester 1, 2016 OUR PLAN Monopoly Reference for reviewing these concepts: Carlton, Perloff, Modern

More information

AP Microeconomics Chapter 11 Outline

AP Microeconomics Chapter 11 Outline I. Learning Objectives In this chapter students should learn: A. The characteristics of pure monopoly. B. How a pure monopoly sets its profit-maximizing output and price. C. The economic effects of monopoly.

More information

Coffee is produced at a constant marginal cost of $1.00 a pound. Due to a shortage of cocoa beans, the marginal cost rises to $2.00 a pound.

Coffee is produced at a constant marginal cost of $1.00 a pound. Due to a shortage of cocoa beans, the marginal cost rises to $2.00 a pound. Microeconomics, Module 11: Monopoly (Chapter 10) Illustrative Test Questions (The attached PDF file has better formatting.) Updated: June 27, 2005 Question 11.1: Monopoly All but which of the following

More information

Gregory Clark Econ 1A, Winter 2012 SAMPLE FINAL

Gregory Clark Econ 1A, Winter 2012 SAMPLE FINAL Gregory Clark Econ 1A, Winter 2012 SAMPLE FINAL 1. Medical doctors in the USA earn very high incomes compared to some other countries such as Canada. Label each of the following with N for NORMATIVE, or

More information

S11Microeconomics, Exam 3 Answer Key. Instruction:

S11Microeconomics, Exam 3 Answer Key. Instruction: S11Microeconomics, Exam 3 Answer Key Instruction: Exam 3 Student Name: Microeconomics, several versions Early May, 2011 Instructions: I) On your Scantron card you must print three things: 1) Full name

More information

Why do monopolies charge different prices to different customers: price discrimination: eg mobile phone tariffs)

Why do monopolies charge different prices to different customers: price discrimination: eg mobile phone tariffs) Why do monopolies charge different prices to different customers: price discrimination: eg mobile phone tariffs) We have previously seen how a monopolist chooses his profit maximising output - Which is

More information

Economics : Principles of Microeconomics Spring 2014 Instructor: Robert Munk April 24, Final Exam

Economics : Principles of Microeconomics Spring 2014 Instructor: Robert Munk April 24, Final Exam Economics 001.01: Principles of Microeconomics Spring 01 Instructor: Robert Munk April, 01 Final Exam Exam Guidelines: The exam consists of 5 multiple choice questions. The exam is closed book and closed

More information

Monopoly single producer strong barriers to entry price marker no close substitute discriminates the price

Monopoly single producer strong barriers to entry price marker no close substitute discriminates the price Monopoly A monopoly market form exists when the output of an entire industry is produced and sold by a single firm. he word monopoly is derived from two Greek words monos means one and polein means to

More information

ECMC02H Intermediate Microeconomics - Topics in Price Theory

ECMC02H Intermediate Microeconomics - Topics in Price Theory 1 ECMC02H Intermediate Microeconomics - Topics in Price Theory Answers to the Term Test June 23, 2010 Version A of the test Your name (Print clearly and underline your last name) Your student number 1.

More information

11.1 Monopoly Profit Maximization

11.1 Monopoly Profit Maximization 11.1 Monopoly Profit Maximization CHAPTER 11 MONOPOLY A monopoly is the only supplier of a good for which there is no close substitute. Monopolies are not price takers like competitive firms Monopoly output

More information

Price Discrimination. It is important to stress that charging different prices for similar goods is not pure price discrimination.

Price Discrimination. It is important to stress that charging different prices for similar goods is not pure price discrimination. What is price discrimination? Price discrimination or yield management occurs when a firm charges a different price to different groups of consumers for an identical good or service, for reasons not associated

More information

Chapter 28 The Labor Market: Demand, Supply, and Outsourcing

Chapter 28 The Labor Market: Demand, Supply, and Outsourcing Chapter 28 The Labor Market: Demand, Supply, and Outsourcing Learning Objectives After you have studied this chapter, you should be able to 1. define marginal factor cost, marginal physical product of

More information

Exam 1. Pizzas. (per day) Figure 1

Exam 1. Pizzas. (per day) Figure 1 ECONOMICS 10-008 Dr. John Stewart Sept. 30, 2003 Exam 1 Instructions: Mark the letter for your chosen answer for each question on the computer readable answer sheet using a No.2 pencil. Note a)=1, b)=2

More information

JANUARY EXAMINATIONS 2005

JANUARY EXAMINATIONS 2005 No. of Pages: (A) 7 No. of Questions: 26 EC1000A ' JANUARY EXAMINATIONS 2005 Subject Title of Paper ECONOMICS EC1000 MICROECONOMICS Time Allowed Two Hours (2 Hours) Instructions to candidates This paper

More information

Monopoly Monopoly occurs when there is a single seller of a good or service. Despite this simple definition that is usually given in textbooks, we

Monopoly Monopoly occurs when there is a single seller of a good or service. Despite this simple definition that is usually given in textbooks, we Monopoly Monopoly occurs when there is a single seller of a good or service. Despite this simple definition that is usually given in textbooks, we must criticize it a bit. Monopoly occurs when there is

More information

VERSION 1. Economics 101 Lec 3 Elizabeth Kelly Fall 2000 Midterm #3 / Version #1 December 4, Student Name: ID Number: Section Number: TA Name:

VERSION 1. Economics 101 Lec 3 Elizabeth Kelly Fall 2000 Midterm #3 / Version #1 December 4, Student Name: ID Number: Section Number: TA Name: Economics 101 Lec 3 Elizabeth Kelly Fall 2000 Midterm #3 / Version #1 December 4, 2000 VERSION 1 TF+MC roblem Total Student Name: ID Number: Section Number: TA Name: NOTE: This information and the similar

More information

The Competitive Model in a More Realistic Setting

The Competitive Model in a More Realistic Setting CHAPTER 13 Monopolistic Competition: The Competitive Model in a More Realistic Setting Chapter Summary and Learning Objectives 13.1 Demand and Marginal Revenue for a Firm in a Monopolistically Competitive

More information

Thursday, October 13: Short and Long Run Equilibria

Thursday, October 13: Short and Long Run Equilibria Amherst College epartment of Economics Economics 54 Fall 2005 Thursday, October 13: Short and Long Run Equilibria Equilibrium in the Short Run The equilibrium price and quantity are determined by the market

More information

Microeconomics (Oligopoly & Game, Ch 12)

Microeconomics (Oligopoly & Game, Ch 12) Microeconomics (Oligopoly & Game, Ch 12) Lecture 17-18, (Minor 2 coverage until Lecture 18) Mar 16 & 20, 2017 CHAPTER 12 OUTLINE 12.1 Monopolistic Competition 12.2 Oligopoly 12.3 Price Competition 12.4

More information

Monopolistic Competition Oligopoly Duopoly Monopoly. The further right on the scale, the greater the degree of monopoly power exercised by the firm.

Monopolistic Competition Oligopoly Duopoly Monopoly. The further right on the scale, the greater the degree of monopoly power exercised by the firm. Oligopoly Monopolistic Competition Oligopoly Duopoly Monopoly The further right on the scale, the greater the degree of monopoly power exercised by the firm. Imperfect competition refers to those market

More information

2) All combinations of capital and labor along a given isoquant cost the same amount.

2) All combinations of capital and labor along a given isoquant cost the same amount. Micro Problem Set III WCC Fall 2014 A=True / B=False 15 Points 1) If MC is greater than AVC, AVC must be rising. 2) All combinations of capital and labor along a given isoquant cost the same amount. 3)

More information

Econ Microeconomic Analysis and Policy

Econ Microeconomic Analysis and Policy ECON 500 Microeconomic Theory Econ 500 - Microeconomic Analysis and Policy Monopoly Monopoly A monopoly is a single firm that serves an entire market and faces the market demand curve for its output. Unlike

More information

1. Fill in the missing blanks ( XXXXXXXXXXX means that there is nothing to fill in this spot):

1. Fill in the missing blanks ( XXXXXXXXXXX means that there is nothing to fill in this spot): 1. Fill in the missing blanks ( XXXXXXXXXXX means that there is nothing to fill in this spot): Quantity Total utility Marginal utility 0 0 XXXXXXXXXXX XXXXXXXXXXX XXXXXXXXXXX 200 0 = 200 1 200 XXXXXXXXXXX

More information

Advanced Microeconomic Theory. Chapter 7: Monopoly

Advanced Microeconomic Theory. Chapter 7: Monopoly Advanced Microeconomic Theory Chapter 7: Monopoly Outline Barriers to Entry Profit Maximization under Monopoly Welfare Loss of Monopoly Multiplant Monopolist Price Discrimination Advertising in Monopoly

More information

Marginal willingness to pay (WTP). The maximum amount a consumer will spend for an extra unit of the good.

Marginal willingness to pay (WTP). The maximum amount a consumer will spend for an extra unit of the good. McPeak Lecture 10 PAI 723 The competitive model. Marginal willingness to pay (WTP). The maximum amount a consumer will spend for an extra unit of the good. As we derived a demand curve for an individual

More information

Welfare economics part 2 (producer surplus) Application of welfare economics: The Costs of Taxation & International Trade

Welfare economics part 2 (producer surplus) Application of welfare economics: The Costs of Taxation & International Trade Welfare economics part 2 (producer surplus) Application of welfare economics: The Costs of Taxation & International Trade Dr. Anna Kowalska-Pyzalska Department of Operations Research Presentation is based

More information

Perfect Competition and The Supply Curve

Perfect Competition and The Supply Curve chapter: 13 >> Perfect Competition and The Supply Curve The following materials are taken from Chap. 13, Economics, 2 nd ed., Krugman and Wells(2009), Worth Palgrave MaCmillan. 2009 Worth Publishers 1

More information

Chapter 24. Introduction. Learning Objectives. Monopoly

Chapter 24. Introduction. Learning Objectives. Monopoly Chapter 24 Monopoly Introduction States have various licensing requirements for individuals who wish to practice specific professions. For example, Ohio requires a $100 license fee to become a kick boxer.

More information

Principles of Economics Final Exam. Name: Student ID:

Principles of Economics Final Exam. Name: Student ID: Principles of Economics Final Exam Name: Student ID: 1. In the absence of externalities, the "invisible hand" leads a competitive market to maximize (a) producer profit from that market. (b) total benefit

More information

13 C H A P T E R O U T L I N E

13 C H A P T E R O U T L I N E PEARSON PRINCIPLES OF MICROECONOMICS E L E V E N T H E D I T I O N CASE FAIR OSTER Prepared by: Fernando Quijano w/shelly Tefft 2of 37 PART III MARKET IMPERFECTIONS AND THE ROLE OF GOVERNMENT Monopoly

More information

Chapter 2: The Basic Theory Using Demand and Supply. Multiple Choice Questions

Chapter 2: The Basic Theory Using Demand and Supply. Multiple Choice Questions Chapter 2: The Basic Theory Using Demand and Supply Multiple Choice Questions 1. If an individual consumes more of good X when his/her income doubles, we can infer that a. the individual is highly sensitive

More information

Lecture 6 Pricing with Market Power

Lecture 6 Pricing with Market Power Lecture 6 Pricing with Market Power 1 Pricing with Market Power Market Power refers to the ability of a firm to set its own price, as opposed to firms that are price takers and take market price as given.

More information

Micro Chapter 10 study guide questions

Micro Chapter 10 study guide questions Micro Chapter 10 study guide questions Multiple Choice Identify the choice that best completes the statement or answers the question. 1. For the competitive price searcher, a. price will exceed marginal

More information

AGENDA Mon 10/12. Economics in Action Review QOD #21: Competitive Farming HW Review Pure Competition MR = MC HW: Read pp Q #7

AGENDA Mon 10/12. Economics in Action Review QOD #21: Competitive Farming HW Review Pure Competition MR = MC HW: Read pp Q #7 AGENDA Mon 10/12 Economics in Action Review QOD #21: Competitive Farming HW Review Pure Competition MR = MC HW: Read pp 173-176 Q #7 QOD #21: Competitive Farming A purely competitive wheat farmer can sell

More information

Microeonomics. Firms in Competitive Markets. In this chapter, look for the answers to these questions: Introduction: A Scenario. N.

Microeonomics. Firms in Competitive Markets. In this chapter, look for the answers to these questions: Introduction: A Scenario. N. C H A T E R 14 Firms in Competitive Markets R I N C I L E S O F Microeonomics N. Gregory Mankiw remium oweroint Slides by Ron Cronovich 2009 South-Western, a part of Cengage Learning, all rights reserved

More information

Teaching about Market Structures

Teaching about Market Structures Teaching about Market Structures Felix B. Kwan, Ph.D. Professor of Econ/Finance, Maryville University AP Econ Conference - FRB St. Louis June 17-19, 2015 Profits Foundational Concepts Some basic terms/concepts

More information

IB Economics Competitive Markets: Demand and Supply 1.4: Price Signals and Market Efficiency

IB Economics Competitive Markets: Demand and Supply 1.4: Price Signals and Market Efficiency IB Economics: www.ibdeconomics.com 1.4 PRICE SIGNALS AND MARKET EFFICIENCY: STUDENT LEARNING ACTIVITY Answer the questions that follow. 1. DEFINITIONS Define the following terms: [10 marks] Allocative

More information

AP Microeconomics Chapter 4 Outline

AP Microeconomics Chapter 4 Outline I. Learning Objectives In this chapter students should learn: A. How to differentiate demand-side market failures and supply-side market failures. B. The origin of consumer surplus and producer surplus,

More information

Lecture 22. Oligopoly & Monopolistic Competition

Lecture 22. Oligopoly & Monopolistic Competition Lecture 22. Oligopoly & Monopolistic Competition Course Evaluations on Thursday: Be sure to bring laptop, smartphone, or tablet with browser, so that you can complete your evaluation in class. Oligopoly

More information

EconS Perfect Competition and Monopoly

EconS Perfect Competition and Monopoly EconS 425 - Perfect Competition and Monopoly Eric Dunaway Washington State University eric.dunaway@wsu.edu Industrial Organization Eric Dunaway (WSU) EconS 425 Industrial Organization 1 / 47 Introduction

More information

PRICING. Quantity demanded is the number of the firm s product customers wish to purchase. What affects the quantity demanded?

PRICING. Quantity demanded is the number of the firm s product customers wish to purchase. What affects the quantity demanded? PRICING So far we have supposed perfect competition: the firm cannot affect the price. Whatever the firm produces is sold at the world market price. Most commodity businesses are highly competitive: regardless

More information

MICROECONOMICS SECTION I. Time - 70 minutes 60 Questions

MICROECONOMICS SECTION I. Time - 70 minutes 60 Questions MICROECONOMICS SECTION I Time - 70 minutes 60 Questions Directions: Each of the questions or incomplete statements below is followed by five suggested answers or completions. Select the one that is best

More information

2007 Thomson South-Western

2007 Thomson South-Western Elasticity... allows us to analyze supply and demand with greater precision. is a measure of how much buyers and sellers respond to changes in market conditions THE ELASTICITY OF DEMAND The price elasticity

More information