ECON 200 Lecture Notes - Lecture 16: Marginal Revenue, Natural Monopoly, Perfect Competition

84 views2 pages

greengiraffe718

12 Nov 2018

School

University of Maryland

Department

Economics

Course

ECON 200

Professor

Hossein Abbasi

For unlimited access to Class Notes, a Class+ subscription is required.

Document Summary

Monopolies exist because of barriers to entry that prevent other rms from entering the market. (cid:12254) (cid:12254) (cid:12254) (cid:12254) A natural monopoly refers to a market where a single rm can produce the entire quantity demanded in market at a lower cost than multiple rms. Monopoly markets di er from perfectly competitive markets with regard to their demand curves. When a monopolist produces more of a good, the market price is driven down. Therefore, producing an additional unit of output has two e ects on total revenue: quantity e ect: total revenue increases, price e ect: total revenue decreases. Because of decrease in price when quantity increases, marginal revenue decreases faster than demand. Total revenue is maximized when marginal revenue equals sh. Average revenue equals price and is greater than or equal to marginal revenue: if demand is linear, marginal revenue decreases twice as fast as demand.

Related Questions

In which of the following ways is a monopoly beneficial to an economy?

A. Monopoly profits give firms more reason to invest in the creation of new products through research and development.

B. Firms that are allowed monopoly profits search out innovative technologies that they can bring to market.

C. With natural monopolies, costs may be lower than those that would exist in competitive markets with many producers.

D. All of the above.

Which of the following is a difference between a perfectly competitive market and a monopoly?

A. The market demand curve faced by a perfectly competitive firm is horizontal, while the market demand curve in a monopoly is downward-sloping.

B. The equilibrium price in a perfectly competitive market exceeds marginal revenue, while the equilibrium price in a monopoly equals marginal revenue.

C. The sellers in a perfectly competitive market are price-makers, while a seller in a monopoly market is a price-taker.

D. There are huge barriers to entry in a perfectly competitive market, while there are no barriers to entry in a monopoly.

In the United States in 2011, there were 104 fatalities per 100,000 workers in the logging industry. This is the second-highest rate after the fisheries industry. Although the fatality rate in this industry is so high, many workers still choose to work as loggers.

What could explain this?

A. Workers choose these high-risk jobs because they are willing to bear an occupational risk to earn a higher wage.

B. Low-risk jobs are already taken, so workers must choose their next-best alternative, which in this case is logging.

C. Workers in these industries lack human capital and must choose to work as loggers.

D. Loggers must be indifferent between low-risk and high-risk jobs.

In the case of a decrease in product prices:

A. the quantity effect always dominates the price effect.

B. the price effect always dominates the quantity effect.

C. when the price effect dominates the quantity effect, total revenue decreases.

D. when the quantity effect dominates the price effect, total revenue decreases

rubywalrus122

Discuss until July 15, 2018. After the deadline, this link will close.

1. Suppose a firm is operating in a competitive market and is maximizing profit by producing at the point where marginal revenue equals marginal cost. Now suppose that consumer wealth decreases in this market (and the good is a normal good). What might you expect to happen to the profit-maximizing output quantity for the firm?

2. In what ways are profit-maximizing and loss-minimizing the same? In what ways are they different?

3. Suppose that De Beers and the local water utility are both monopolists, in the markets for diamond jewelry and water, respectively. If both monopolies decided to raise prices 15 percent, which monopoly would be more likely to see its total revenue decrease? Why?

4. Until the 1980s, AT&T held a monopoly over the national market for phone services. Suppose that AT&T argued that it was a natural monopoly, because the fixed cost of creating a nationwide phone network generated huge economies of scale, and that there was therefore no welfare loss associated with its monopoly. Counter this argument by explaining how even a natural monopoly causes deadweight loss.

5. Explain why an oligopolist (with few competitors) pays more attention to what its competitors are doing than a producer in a competitive market (with many competitors) does.

6. Given that the market for smartphones is inefficient, explain why consumers of smartphones might not want the price to be regulated.

The following graph shows the demand (D) for gas services in the imaginary town of Utilityburg. The graph also shows the marginal revenue (MR) curve, the marginal cost (MC) curve, and the average total cost (ATC) curve for the local gas company, a natural monopolist.

On the following graph, use the black point (plus symbol) to indicate the profit-maximizing price and quantity for this natural monopolist.

Monopoly Outcome01234567891020181614121086420PRICE (Dollars per hundred cubic feet)QUANTITY (Hundreds of cubic feet)DMRMCATC4, 12

Which of the following statements are true about this natural monopoly? Check all that apply.

It is more efficient on the cost side for one producer to exist in this market rather than a large number of producers.

The gas company is experiencing economies of scale.

The gas company must own a scarce resource.

The gas company is experiencing diseconomies of scale.

True or False: Without government regulation, natural monopolies can earn positive profit in the long run.

True

False

salmonturtle238

ECON 200 Lecture Notes - Lecture 16: Marginal Revenue, Natural Monopoly, Perfect Competition

Document Summary

Get access

Related Documents

ECON 200 Lecture Notes - Lecture 17: Clayton Antitrust Act, Natural Monopoly, Deadweight Loss

ECON 200 Chapter Notes - Chapter 14: Perfect Competition, Predatory Pricing, Demand Curve

ECON 200 Chapter Notes - Chapter 14: Marginal Cost, Sirocco, Ticketmaster

Related Questions