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econ 201 ch 9
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barriers to entry
any impediment that prevents new firms form entering an industry and competing on an equal basis with existing firms
what are three types of entry barriers
legal restrictions
economies of scale
control of essential resources
What are some legal restrictions on entry into a market?
patents and invention incentives
licenses and other entry restrictions
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
innovation
the process of turning an invention into a marketable product
monopoly demand
since a monopoly supplies the entire market, the demand for a monopolistic output is also the market demand
average revenue
total revenue/quantity
demand curve is also the average revenue curve
marginal revenue
marginal revenue is less than the price, or average revenue
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
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
deadweight loss of monopoly
net loss to society when a firm with market power restricts output and increases the price
rent seeking
activities undertaken by individuals or firms to influence public policy in a way that increases their incomes
price discrimination
increasing profit by charging different groups of consumers different prices for the same product
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
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
Author
lorilee1929
ID
85732
Card Set
econ 201 ch 9
Description
monopoly
Updated
5/14/2011, 4:41:35 AM
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