Ch. 15 Monopolies

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The sole seller of a product without close substitutes Has market power It’s a PRICE MAKER

Natural Monopoly

Single firm that produces the entire market Q at a lower cost than several firms could

Output effect

Higher output = higher revenue

Price effect

Lower price = lower revenue

Price discrimination

Selling some good at different prices to different people

A firm is a natural monopoly if it exhibits the following as its output increases:

decreasing average total cost.

For a profit-maximizing monopoly that charges the same price to all consumers, what is the relationship between price , marginal revenue , and marginal cost ?

P>MR and MR = MC

If a monopoly’s fixed costs increase, its price will _____, and its profit will _____.

stay the same, decrease

Compared to the social optimum, a monopoly firm chooses

a quantity that is too low and a price that is too high.

The deadweight loss from monopoly arises because

some potential consumers who forgo buying the good value it more than its marginal cost.

When a monopolist switches from charging a single price to perfect price discrimination, it reduces

Consumer Surplus

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