ECON1001 Lecture Notes - Lecture 9: Fixed Cost, Economic Surplus, Arbitrage

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browngrasshopper715

13 Aug 2018

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Document Summary

A monopoly is a market with one seller, and that seller is a monopolist. Monopolies have the following characteristics: one seller and many buyers, price maker. Because the monopolist is the only firm in the market, it has the market power to determine the price in the market. It will charge higher prices in order to increase profits: barriers to entry. Firms that might like to enter the market are prevented from doing so by barriers to entry. Barriers to entry may exist for a number of reasons: Control over an essential input not available to other firms: ownership of a natural resource, ownership of a particular technology. Legal (new discoveries, medicines: pate(cid:374)ts (do(cid:374)(cid:859)t last fo(cid:396)e(cid:448)e(cid:396), pate(cid:374)ts a(cid:396)e pu(cid:271)li(cid:272) domain firms can see the patent) therefore, a patent is a temporary monopoly. Intellectual property is present to give incentive for research and development. Allows firms to recover the money invested in research and development.

Related Questions

The pharmaceutical industry operates in an oligopoly. There are a limited number of firms in the industry. This is due primarily to the high fixed cost of entering the market, the high cost of research and development, obtaining patents, and dealing with mergers and acquisitions. Let us assume that over 70% of the products sold in this market are protected by patents for the next eight years.

Identify and describe the market characteristics of oligopoly.
Explain price competition in oligopoly.
Explain the barriers to entry in monopoly and oligopoly.
Does this pharmaceutical industry conform to an economist's definition of an oligopoly? Justify your response.

plumox822

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

1. 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: ( I put A)

to both perfectly competitive firms and monopolies

only to monopolies

only to perfectly competitive firms

only to firms that can employ discriminatory pricing strategies

2. If a monopolist or a perfectly competitive firm is producing at a break-even point, then: ( I put II, IV)
i. average revenue is equal to average variable cost
ii. average revenue is equal to the o average total cost
iii. total revenue is equal to total variable cost
iv. total revenue is equal to the total cost

iii

I and iii

ii and iv

3. What do economies of scale, the exclusive ownership of essential raw materials used in the production process, and patents have in common? (I put A)

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 firm's short-run average total cost curve is U-shaped