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Cards In This Set
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The formula for total revenue (TR).
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Total Revenue = Price x Quantity
TR = P x q
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The formula for average revenue (AR).
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Average Revenue = total revenue/quantity
AR = TR/q
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The formula for marginal revenue (MR).
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Marginal Revenue = The change in total revenue/change in quantity.
MR = ^TR/^q
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In the long-run what characteristic of Perfect Competition allows it to operate at the lowest ATC?
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Because in perfect competitive markets marginal revenue, average revenue, and price are all equal:
P = MR = AR
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What are the 4 characteristics of a monopoly?
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1.single seller and many buyers
2.unique product
3.entry is impossible
4.perfect information
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What are the 3 types of monopolies?
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1.closed monopoly
2.natural monopoly
3.open monopoly
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Monopoly deadweight loss.
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Monopoly inefficiency.
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What's the standard case against monopolies?
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The standard economic case against monopolies is that with the same cost strucutre a supplier will produce a lower output and charge a higher price than a competitive industry. This leads to a net loss of economic welfare and efficiency and price is driven above marginal cost leading to allocative inefficiency.
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Monopolistic Competition
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Many firms each making a slightly different product. Each firm's output level is small relative to the total.
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Perfect Competition.
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Many firms, all making the same product. Each firm's output level is very small relative to the total output level.
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Perfect Competition assumptions.
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There are many buyers and sellers and each firm is a price-taker.
Homogeneous product.
Freedom of entry and exit.
Perfect information.
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Name the four strategies that government uses to handle monopolies.
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1. Leave it alone.
2. Break it up.
3. Regulate it by setting price/profit.
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Why would the government leave a monopoly alone?
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Because the monopoly may be temporary such as patents. It may be a large economy of scale and/or network advantage. Or there may be little potential for abuse.
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Why would the government break up a monopoly?
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It may be a non temporary situation. There are no large economies of scale and/or network advantage and people with pay higher prices for less quantity. When we don't get any benefit from the monopoly.
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