ECON101 Lecture Notes - Lecture 12: Groupon, Old Age, Manitoba Hydro

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brownsheep612

24 Sep 2016

School

University of Waterloo

Department

Economics

Course

ECON101

Professor

Olivia Mesta

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ECON101 Full Course Notes

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While a competitive firm is a price taker, a monopoly firm is a price maker. 15: monopoly: a monopoly is a firm that is the sole seller in its market. When a monopoly increases production by 1 unit, it causes the price of its good to fall, which reduces the amount of revenue earned on all units produced. As a result, a monopoly"s marginal revenue is always below the price of its good: like a competitive firm, a monopoly firm maximizes profit by producing the quantity of which marginal revenue equals marginal cost. The monopoly then chooses the price at which that quantity is demanded. Unlike a competitive firm, a monopoly firm"s price exceeds its marginal revenue, so its price exceeds marginal cost: a monopolist"s profit-maximizing level of output is below the level that maximizes the sum of consumer and producer surplus.

Related Questions

One difference between a monopoly and a competitive firm is that

A. A monopoly firm faces a downward sloping demand curve.

B. A monopoly maximizes profit by setting marginal revenue equal to marginal cost.

C. Monopoly maximizes profit by setting marginal revenue equal to marginal cost.

D. None of the above.

byzantiummanatee856

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

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

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

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

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

2. Which of the following firms is likely to have the highest market power?

A. An oligopoly with homogeneous products

B. A monopoly

C. A monopolistic competitor

D. A perfectly competitive firm

graygrasshopper945

Select the correct answer:

A (legal; natural) monopoly exists when one firm can meet the entire market demand at a lower average total cost than two or more firms could.

A monopoly that is able to sell different units of a good or service for different prices is a (natural-price; price-discriminating) monopoly.

The act of obtaining special treatment by the government to create an economic profit is called (government surplus; rent seeking).

Regulated firms have an incentive to inflate their costs under (rate of return; price cap) regulation.

The U.S. Postal Service has a (natural; legal) monopoly on first class mail delivery.

A (single-price; price discriminating) monopoly maximizes profit by producing the quantity at which marginal revenue equals marginal cost and then charging the maximum price that consumers are willing to pay for that quantity.

The key idea behind price discrimination is to convert (consumer surplus; producer surplus) into economic profit.

ECON101 Lecture Notes - Lecture 12: Groupon, Old Age, Manitoba Hydro

ECON101 Full Course Notes

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