01
Front
What defines a monopoly?
Back
A monopoly is a market served by one seller with no close substitutes.
Free Online Flashcard Deck
3 Monopoly and Market Power Free Online FlashCards
Study 3 Monopoly and Market Power with 12 free online flashcards. Review key terms, definitions, and concepts with this interactive flashcard deck.
12 cards
02
Front
What is market power?
Back
Market power is a firm's ability to influence price rather than simply accept the market price.
03
Front
What factors affect a firm's market power?
Back
It depends on the number of sellers, how readily customers can switch to alternatives, and how easily new firms can enter.
04
Front
What does a downward-sloping demand curve imply for a firm with market power?
Back
To sell more, the firm generally must lower its price, so its demand curve slopes downward.
05
Front
Why is a monopolist's marginal revenue below its price?
Back
Marginal revenue is below price because lowering the price to sell an extra unit usually also lowers the price charged on earlier units.
06
Front
How does a profit-maximizing monopolist choose output and price?
Back
Choose the quantity where MR=MC, then read the corresponding price from the market demand curve.
07
Front
If P=100−Q and MC=$20, what monopoly output and price result?
Back
Marginal revenue is MR=100−2Q. Setting it equal to marginal cost gives Q=40, and demand then gives a price of $60.
08
Front
When does a monopolist earn economic profit?
Back
The firm earns economic profit only if price exceeds average total cost at the chosen output; MR=MC alone does not guarantee profit.
09
Front
How does demand responsiveness relate to a monopolist's markup?
Back
In the standard single-price model, the profit-maximizing markup is larger when demand is less price-sensitive. A markup alone does not establish that a firm is legally a monopolist.
10
Front
What is price discrimination?
Back
It means charging different prices for the same product when the differences are not explained by differences in the cost of serving buyers.
11
Front
What is first-degree price discrimination?
Back
The firm charges each buyer, or each unit sold, close to that buyer's willingness to pay. In the idealized case, it captures nearly all consumer surplus.
12
Front
What is second-degree price discrimination?
Back
The firm offers a menu of prices or versions and lets customers select, such as quantity discounts or different service plans.
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