econ 201 ch 9

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  1. barriers to entry
    any impediment that prevents new firms form entering an industry and competing on an equal basis with existing firms
  2. what are three types of entry barriers
    • legal restrictions
    • economies of scale
    • control of essential resources
  3. What are some legal restrictions on entry into a market?
    • patents and invention incentives
    • licenses and other entry restrictions
  4. pantent
    a legal barrier to entry that grans the holder the exclusive right to sell a product for 20 years from the date the patent application is filed
  5. innovation
    the process of turning an invention into a marketable product
  6. monopoly demand
    since a monopoly supplies the entire market, the demand for a monopolistic output is also the market demand
  7. average revenue
    • total revenue/quantity
    • demand curve is also the average revenue curve
  8. marginal revenue
    marginal revenue is less than the price, or average revenue
  9. price maker
    • a firm with some power to set the price because the demand curve for its output slopes downward
    • a firm with market power
  10. what are the two ways a firm can approach profit maximization?
    • total approach-supplies the quantity at which total revenue exceeds total cost by the greatest amount
    • marginal approach-where marginal revenue equals marginal cost
  11. deadweight loss of monopoly
    net loss to society when a firm with market power restricts output and increases the price
  12. rent seeking
    activities undertaken by individuals or firms to influence public policy in a way that increases their incomes
  13. price discrimination
    increasing profit by charging different groups of consumers different prices for the same product
  14. what are the conditions for price discrimination
    • the firm is a price maker
    • there must be at least two groups of consumers for the product
    • the firm must be able to charge each group a different price for the same product at little cost
    • the firm must be able to prevent those who pay the lower price from reselling the product to those who pay the higher price
  15. perfectly discriminating monopolist
    • a monopolist who charges a different price for each unit sold
    • also called a monopolist's dream
    • is able to convert every dollar of consumer surplus into economic profit
    • consumers just break even because total benefit equals total cost
    • example cell phone service
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econ 201 ch 9
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