ECON 2010 Lecture Notes - Lecture 27: Market Power, Government Failure, State Ownership

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ECON 2010 Full Course Notes

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Ex: expensive on average to deliver power to 10 people, cheaper to deliver it to 1000 people (fixed cost decline over time) Don"t want multiple companies with power lines all over. P dropping to increase q will lower revenue from all other sales. Public ownership: postal service (natural monopoly because it"s more efficient to have only one provider) Do nothing: chicago school and government failure (monopoly is not ideal, monopoly prices and they can"t regulate properly) Think of late 19th century us towns and one employer. Some, but they can still get employed elsewhere. Each seller impacts the other, has market power. Benefit because of restrictions on production, keeping prices high. Imagine the car market in the us had only 2 carmakers: gm and. When gm decides how many cars to produce, they know their choice will influence the market. In perfect competition, gm would build as many as it can (price- taker)

Related Questions

If a monopolist or a perfectly competitive firm is producing at a break-even point, then:
i. average revenue is equal to average variable cost
ii. average revenue is equal to average total cost
iii. total revenue is equal to total variable cost
iv. total revenue is equal to total cost

iii

i and iii

ii and iv

A natural monopoly, such as a local electricity provider, is the result of:
i. a firm owning or controlling a key input used in the production process
ii. economies of scale existing over a wide range of output
iii. long-run average total costs declining continuously as output increases
iv. long-run total costs declining continuously as output increases

What do economies of scale, the exclusive ownership of essential raw materials used in the production process, and patents have in common?

they are all barriers to entry

they all help explain why a monopolists demand and marginal revenue curves are identical

they must all be present before a monopolist may practice price discrimination

they all help explain why a firms short run average total cost curve is U-shaped

#10

The principle that a firm should produce up to the point where the marginal revenue (MR) from the sale of an extra unit of output is equal to the marginal cost (MC) of producing the extra unit applies:

to both perfectly competitive firms and monopolies

only to monopolies

only to perfectly competitive firms

only to firms that can employ discriminatory pricing strategies

#11

A monopoly is producing a level of output such that marginal revenue is equal to marginal cost. The firm is selling its output at a price of $8 per unit and is incurring average variable costs of $5 per unit and average total costs of $10 per unit. Given this information, it may be concluded that the firm:

is operating at maximum total profit

is operating at a loss that could be reduced by shutting down

is operating at a profit that could be increased by producing more output

is operating at a loss that is less than the loss incurred by shutting down

#12

Suppose the demand function for a profit maximizing monopolists good is P = 120 - 0.2Q, its total cost function is TC = 40 + 4Q + Q2, and its marginal cost function is MC = 4 + 2Q. If the firm uses a uniform pricing strategy, then rounded to the nearest unit of output and to the nearest dollar the firm will:

produce 48 units of output, charge a price of $110, and earn a total profit of $5280

produce 48 units of output, charge a price of $110, and earn a total profit of $2744

produce 52 units of output, charge a price of $134, and earn a total profit of $5322

produce 52 units of output, charge a price of $134, and earn a total profit of $4016

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ECON 2010 Lecture Notes - Lecture 27: Market Power, Government Failure, State Ownership

ECON 2010 Full Course Notes

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