Sole producer of a product with no close substitutes.
A market in which a single firm sells a product that does not have any close substitutes.
What are the characteristics of a monopoly?
1. one seller
2. no close substitues
3. price maker
4. sinificant barriers
What is the relationship between price and marginal revenue in a monopoly?
Monopolist will not produce in what portion of the damand curve and why?
In the inelastic portion because marginal revenue is negative.
In a monopoly, total revenue is max at...
unitary elasticity because marginal revenue equals zero.
Why can monopolists earn an economic profit?
Because of the barriers to enter the market.
Define monopolistic competition.
A market served by many firms that sell slightly different productes.
What are the charateristics of a monopolistic competition?
1. relatively large number of firms
2. differentiated product
3. price maker
4. no significant barriers
How can you defferentiate a product?
If the demand curve slopes downward, what is the relationship between price and marginal revenue?
When do firms incur an economic loss and a economic profit?
economic loss-when price is below average total cost
economic profit-when price is above total cost
Monopolies have what type of demand?
More of an elastic demand.
Because there are no barriers, economic profit is a signal for what?
For new firms to enter the market in the long-run.
What is the relationship between price and avarage total cost when economic profit equals zero?
Is monopolistic conpetition effective?
No, because they don't produce where P=MC.
A few firms donminate the market.
A market served by a few firms.
What are the characteristics of an oligopoly?
1. more than 40%
2. standardized or differentiated product
3. significant barriers to entry
4. mutual interdependence
Define and give and example of Collusive.
Firms formally get together to set price or output levels. ex. cartel, OPEC
Firms that act in unison, coordinating their price and quantity decisions.
What are the non-collusive models?
1. Kinked Demand Curve
2. Price Leadership
3. Contestable Market Theory
Define Kinked demand curve model.
Firms match a price decrease, but they tend to ignore price increase.
A model in which firms in an oligopoly match price cuts by other firms, but do not mach pice hikes.
Define Price Leadership.
Tend to have one large firm and several smanll firms where leader sets the price and others copy.
A system under which one firm in an oligopoly take the lead in setting prices.
What is the Contestable Market Theory?
A market with low entry and exit cost.
Oligopoly that behaves like there are many firms (mobile capital)
What is HHI?
An index that measures the concentration of a market. It is calculated by squaring the market share of each firm in the market and the summing the resulting numbers. A market is "unconcentrated" if HHI is below 1000 and "highly concentrated" if it is above 1800.
Define Game Theory.
The study of decision makin inn strategic situations.
Define Price Discimination.
Occurs when a firm chargers different pricesto different customers and those prices do not reflect differences in production prices.
The practice of selling a good at different prices to different consumers.
What do you need in order to practice Price Discrimination?
1. Monopoly Power - control over price
2. Segment customer into groups (different elasticities)