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University of Toronto Mississauga

Ch10&12 1. Unlike a perfectly competitive firm, a monopolist faces a negatively sloped demand curve 2. Average revenue: TR=p*Q , AR= TR/Q= p*Q/Q=p 3. Marginal revenue: MR=∆TR/∆Q The monopolist’s marginal revenue is less than the price at which it sells its output. Thus the monopolist’s MR curve is below its demand curve 4. Short-run profit maximization Rule1: the firm should not produce at all unless price (average revenue) exceed average variable cost Rule 2: if the firm does produce, it should produce a level of output such that marginal revenue equals marginal cost. Nothing guarantees that a monopolist will make positive profits in the short run, but if it suffers persistent losses, it will eventually go out of business. 5. Supply curve for monopolist A monopolist does not have a supply curve because it is not a price taker; it chooses its profit-maximizing price-quantity combination from among the possible combinations on the market demand curve 6. Competition and monopoly compared A perfectly competitive industry produces a level of output such that price equals marginal cost. A monopolist produces a lower level of output, with price exceeding marginal cost. A monopolist restricts output below the competitive level and thus reduces the amount of economic surplus generated in the market. The monopolist therefore creates an inefficient market outcome. 7. If monopoly profits are to persist in the long run, the entry of new firms into the industry must be prevented. 8. Entry barrier: any barrier to the entry of new firms into an industry. An entry barrier may be natural or created. 形形形形形形形形形形形形形形 1 形形形形形形   必要资本量及埋没形形   资品差资   资资资用   政策法律 形形形形形形形形形形形形形形形 Eg. Barriers to entry do not include a) copyrights. b) union pickets. c) patents. d) economies of scale. 9. Monopoly is a market structure in which an entire industry is supplied by a single firm. The monopolist’s own demand curve is identical to the market demand curve for the product (downsloping). In a perfectly competitive industry firms accept the market price as given, so the firm’s demand curve is perfectly elastic. 10.Nature monopoly: an industry characterized by economies of scale sufficiently large that only one firm can cover its costs white producing at its minimum efficient scale. 自然资断是指由于市资的自然条件而资生的资 形 11.In competitive industries, profits attract entry, and entry erodes profits. In monopolized industries, positive profits can persist as long as there are effective entry barriers. 12.A single-price monopolist that maximizes profits will produce at the output where MR=MC. In the long run, a perfectly competitive firm (and industry) produces a level of output such that all are true. The monopolist produces a level of output such that price > marginal cost. 13.The profits that a monopoly earns may be positive (P>ATC), zero (P=ATC) or negative (PATC) 14.For the monopolist, equilibrium output is such that price is greater than marginal cost. 15.A monopolist’s entry barriers are often circumvented by the innovation of production processes and the development of new goods and services. Such innovation explains why monopolies rarely persist over 2 long periods, except those that are protected through government charter or regulation. 16.Cartel: an organization of producers who agree to act as a single seller in order to maximize joint profits. (形形形形形形形 MR=MC 的利资最大化准形) Cartels tend to be unstable because of the incentives for individual firms to violate the output restrictions needed to sustain the joint- profit-maximizing (monopoly ) price. Any one farmer is better off if that farmer cheats because they can sell at the cartel price which is higher than the competitive price. However if all farmers cheat all will be worse off than if they had joined the cartel, restricted output, and stuck to the monopoly output 形形形 形cartel形 由一系列生资资似资品的独立企资所资成的资资,集体行资的生资 形,的是提高资资资品价格和控制其资量 形形形形形资断资资形式之一。生资或资售某 一同资商品的企资,资资断市资,资取高资利资,通资在商品价格、资量和资售等 方面资立资定而形成的同盟。参加资一同盟的成资在生资、商资和法律上仍然保持 形形形形形形形(Cartel)是一种正式的形形行资,它能使一个资争性市资资成一个资断 市资,属于形形形形的一个特例形 17.Cartels agree to restrict industry output to the level that maximizes their joint profits (where the industry’s marginal cost is equal to the industry’s marginal revenue) 18.The incentive for firms to form a cartel lies in the cartel’s ability to increase profits. 19.The profit-maximizing cartelization of a competitive industry will reduce output and raise price from the perfectly competitive levels. 20.If price differences reflect cost differences, they are not discriminatory. When price differences are based on different buyers’ valuations of the same product, they are discriminatory. 21.Price discrimination: the sale by one firm of different units of a commodity at two or more different prices for reasons not associated with differences in cost. 价格歧资是一种重要的资断定价行资,是资断企资通资 差差差差来 资取超资利资的一种 Eg 1. A perfect price-discriminating monopoly will be a) as efficient as a single-price monopoly. b) as efficient as a perfectly competitive industry. c) more efficient than a single-price monopoly, but less efficient than a perfectly competitive industry. 3 d) less efficient than a single-price monopoly. Eg2. When perfect price discrimination occurs, which one of the following statements is false ? a) The firm captures consumer surplus. b) Buyers cannot resell the product. c) Efficiency is worse than with single-price monopoly. d) The firm can distinguish between buyers. Eg3. In order for a monopolist to be able to practice price discrimination, a) the monopolist must be able to segment the market. b) the monopolist must be able to shrink output. c) the monopolist must have declining average variables costs of production. d) the monopolist must have different marginal costs of production for different output levels. Eg4. A monopoly has economies of scope if a) average total cost declines as output increases. b) total profit declines as output increases. c) average total cost declines as the firm's scale increases. d) average total cost declines as the number of different goods produced increases. 形形形形 -资模资资的差异资模资资,一般界定资初始资段,厂商由于资大生资 资模而使资资效益得到提高的资象。而当生资资资到一定资模以后,厂商资资资 大生资资模,会资致资效益下降,出资模不资资形 形形 范资资资与资模资资是资个不同的概念,二者之资并无直接的关系: A、一个生资多种资品的企资,其生资资程可能不存在资模资资,但是却可能资 得范资资资; B、一个工厂用资大资模只生资某一种资品可能会资生资模资资,但是却不可能 4 C、范资资资资资生资不同种资资品(包 括品种与资格 )资得的资资性,资模资资 资资的是资量资模资来的资资性。 形形形形形形形形形形形形形 形形形形形形形形是指随着资量的增加,企资的资 期平均成本 形形形   内部范资资资是指随着资品品种的增加,企资资期平均成本下降。 形形形形形形形形形形形形形形形 外部资模资资是指在同一个地方同行资企资的增加,多个同行企资共享当地的资 助性生资、共同的基资资施与服资、资资力供资与培资所资来的成本的资资。   外部范资资资是指在同一个地方,资个企资生资活资资资化,多个企资 分工资作,资成地方 形形形形形形形形形是通资企资之资的分工与资作、交流与资通引 起成本的资资。 22.Any firm that faces a downward-sloping demand curve can increase its profits if it is able to charge different price for different units of its product. 23.When is price discrimination possible?  Market power  Identification of consumers’ different valuations  No arbitra利 )套 24.Different forms of price discrimination  Price discrimination among units of output  Price discrimination among market segments(形形 形 形) A firm with market power that can identify distinct market segments will maximize its profits by charging higher prices in those segments with less elastic demand Price discrimination is easier for services than for tangible goods because for most services the firms transact directly with the customer and thus can more easily prevent arbitrage  Hurdle pricing Hurdle pricing exists when firms create an obstacle that consumers must overcome in order to get a lower price. Consumers then assign themselves to the various market segments- those who don’t want to jump the hurdle and are willing to pay the high price, and those who choose to jump the hurdle in order to benefit from the low price. 5 25.The consequences of price discrimination  Price discrimination and firm profits For any given level of output, the most profitable system of discriminatory prices will always provide higher profits to the firm than the profit-maximizing single price.  Price discrimination and output A monopolist that price discriminates among units will produce more output than will a single-price monopolist. If price discrimination leads the firm to increase total output, the total economic surplus generated in the market will increase, and the outcome will be more efficient.  Price discrimination and consumer welfare There is no general relationship between price discrimination and consumer welfare. Price discrimination usually makes some consumers better off and other consumers worse off. 26.
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