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ECON-101 Lecture Notes - Lecture 30: Monopolistic Competition, Price Discrimination, Demand Curve

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School
MacEwan University
Department
Economics
Course
ECON-101
Professor
Alexander Gainer

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Document Summary

Monopoly; rm that is the only seller of a produce, which has no close substitutes. Note: monopoly rm has market power, the ability to in uence the market price of the product it sells. Most monopolies are made by governments, to help further research. Barriers to entry; other businesses cannot enter the market. In a competitive market, the market demand curve slopes downwards. But, the demand curve for any individual rm"s product is horizontal at the market price. Firms can increase q without lowering p, so mr = p for the competitive rm. Question: to maximize pro ts, a monopolist can charge any price he/she desires. A monopolist is the only seller, so it faces the market demand curve. To sell a larger q, the rm must reduce p. thus, mr does not equal p . Price = average revenue (ar) true to competitive rms. Mr

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Related Questions

In which of the following ways is a monopoly beneficial to an economy?

A. Monopoly profits give firms more reason to invest in the creation of new products through research and development.

B. Firms that are allowed monopoly profits search out innovative technologies that they can bring to market.

C. With natural monopolies, costs may be lower than those that would exist in competitive markets with many producers.

D. All of the above.

Which of the following is a difference between a perfectly competitive market and a monopoly?

A. The market demand curve faced by a perfectly competitive firm is horizontal, while the market demand curve in a monopoly is downward-sloping.

B. The equilibrium price in a perfectly competitive market exceeds marginal revenue, while the equilibrium price in a monopoly equals marginal revenue.

C. The sellers in a perfectly competitive market are price-makers, while a seller in a monopoly market is a price-taker.

D. There are huge barriers to entry in a perfectly competitive market, while there are no barriers to entry in a monopoly.

   

In the United States in 2011, there were 104 fatalities per 100,000 workers in the logging industry. This is the second-highest rate after the fisheries industry. Although the fatality rate in this industry is so high, many workers still choose to work as loggers.

What could explain this?

A. Workers choose these high-risk jobs because they are willing to bear an occupational risk to earn a higher wage.

B. Low-risk jobs are already taken, so workers must choose their next-best alternative, which in this case is logging.

C. Workers in these industries lack human capital and must choose to work as loggers.

D. Loggers must be indifferent between low-risk and high-risk jobs.

In the case of a decrease in product prices:

A. the quantity effect always dominates the price effect.

B. the price effect always dominates the quantity effect.

C. when the price effect dominates the quantity effect, total revenue decreases.

D. when the quantity effect dominates the price effect, total revenue decreases

A. A competitive firm

  1. can consider only its location in setting the price.
  2. must base its competitive price on product differentiation.
  3. has the ability to set its own price.
  4. must accept the price determined by the intersection of the market supply and demand curves.
  5. has no supply curve.

B. If a firm is making an economic profit, then

  1. the factors of production are being paid their opportunity costs.
  2. there will be no change in the number of firms if the industry is perfectly competitive.
  3. the factors of production are being paid less than their opportunity costs.
  4. the factors of production are being paid more than their opportunity costs.
  5. the firm will exit the industry

C. Along a downward-sloping monopoly demand curve,

  1. marginal revenue is greater than price.
  2. the elasticity of demand is constant.
  3. marginal revenue decreases when the price decreases.
  4. marginal revenue is equal to zero when the price is equal to zero

D. If, in the short run, a perfectly competitive firm is producing at a point where the total cost is greater than total revenue, then the firm should

  1. shut down because economic profits are negative.
  2. continue to produce as long as P > AVC.
  3. continue to produce because accounting profits are positive.
  4. set a higher price for its output.
  5. set a lower price for its output

E. For a perfectly competitive firm, the demand curve is

  1. the marginal revenue curve.
  2. perfectly inelastic.
  3. always equal to marginal cost.
  4. the same as the market demand curve

F. A firm in a(n) industry will have the most elastic demand curve

  1. monopolistic
  2. oligopolistic
  3. monopolistically competitive
  4. perfectly competitive

G. If the demand curve of a monopolist is in the inelastic range, then

  1. total revenue will fall if the price increases.
  2. total revenue will be unchanged if the price increases.
  3. total revenue will rise if the price increases.
  4. the total supply will increase by an equal amount if demand increases.
  5. the price will be unchanged if total revenue increases

H. Monopolistic competition and oligopoly are examples of

  1. monopoly.
  2. perfect competition.
  3. theories of consumer behavior.
  4. imperfect competition.
  5. the extreme cases on the market structure continuum

I. Under which market structure do firms face the flattest (most elastic) demand curve?

  1. perfect competition
  2. monopolistic competition
  3. oligopoly
  4. monopoly

J. At the point of long-run equilibrium for a perfectly competitive firm,

  1. economic profits are zero.
  2. TR > TC.
  3. TR < TC.
  4. P = AVC.
  5. normal profits are zero.

30. Economies of scale refer to: 

a. the minimum point on the short-run average total cost curve.

b. the flat portion of the long-run average total cost curve.

c. a decrease in the long-run average total cost of production as output increases.

d. a and b.

 

31. With a natural monopoly, the price a single firm must charge to make a profit:

a. is lower than the price two or more firms would have to charge.

b. is always higher than the price two or more firms would have to charge.

c. is equal to the price of two or more firms would have to charge.

d. is half the price two or more firms would have to charge.

 

32. The long-run average cost curve is typically:

a. downward-sloping at first but then upward-sloping.

b. upward-sloping at first but then downward-sloping.

c. always downward-sloping.

d. always upward-sloping.

 

33. According to the contestable market model, if there are no barriers to entry or exit, the price an oligopolist sets will be equivalent to the competitive price. 
True or False?

 

34. In the theory of perfect competition:

a. the market demand curve is horizontal (i.e. elastic).

b. the single firm's demand curve is horizontal (i.e. elastic).

c. the single firm's demand curve is downward sloping.

d. a and b.