ECON 1B03 Lecture 11: Microeconomic - week 11
ECON 1B03 Full Course Notes
Select the correct answer:
A (legal; natural) monopoly exists when one firm can meet the entire market demand at a lower average total cost than two or more firms could.
A monopoly that is able to sell different units of a good or service for different prices is a (natural-price; price-discriminating) monopoly.
The act of obtaining special treatment by the government to create an economic profit is called (government surplus; rent seeking).
Regulated firms have an incentive to inflate their costs under (rate of return; price cap) regulation.
The U.S. Postal Service has a (natural; legal) monopoly on first class mail delivery.
A (single-price; price discriminating) monopoly maximizes profit by producing the quantity at which marginal revenue equals marginal cost and then charging the maximum price that consumers are willing to pay for that quantity.
The key idea behind price discrimination is to convert (consumer surplus; producer surplus) into economic profit.
Discuss until July 15, 2018. After the deadline, this link will close.
1. Suppose a firm is operating in a competitive market and is maximizing profit by producing at the point where marginal revenue equals marginal cost. Now suppose that consumer wealth decreases in this market (and the good is a normal good). What might you expect to happen to the profit-maximizing output quantity for the firm?
2. In what ways are profit-maximizing and loss-minimizing the same? In what ways are they different?
3. Suppose that De Beers and the local water utility are both monopolists, in the markets for diamond jewelry and water, respectively. If both monopolies decided to raise prices 15 percent, which monopoly would be more likely to see its total revenue decrease? Why?
4. Until the 1980s, AT&T held a monopoly over the national market for phone services. Suppose that AT&T argued that it was a natural monopoly, because the fixed cost of creating a nationwide phone network generated huge economies of scale, and that there was therefore no welfare loss associated with its monopoly. Counter this argument by explaining how even a natural monopoly causes deadweight loss.
5. Explain why an oligopolist (with few competitors) pays more attention to what its competitors are doing than a producer in a competitive market (with many competitors) does.
6. Given that the market for smartphones is inefficient, explain why consumers of smartphones might not want the price to be regulated.