Exam 23: Monopoly

A monopolist will not produce at all if the intersection of marginal revenue and marginal cost occurs at a quantity at which average cost lies above the demand curve.

Suppose a monopolist has zero marginal cost.If he faces a market demand curve with constant price elasticity of -2, the profit maximizing output level approaches infinity.

Monopoly power can last only if there are legal barriers to entry for other firms.

A (non-price discriminating) monopolist with zero marginal cost but recurring fixed costs may end up not producing even if it would be efficient for him to produce.

First degree price discrimination is efficient and therefore preferred by everyone to no price discrimination on the part of a monopolist.

The more profit a monopolist makes, the more inefficient is the monopoly outcome.

Suppose a monopolist faces a constant elasticity market demand curve with price elasticity equal to -2.What will be the price charged by this monopolist assuming constant marginal cost of 10.

Suppose a single firm has constant marginal cost and faced the demand curve a.Illustrate in this graph how a monopolist who cannot price discriminate would price this good.What is the monopoly price and quantity? b.Assuming no recurring fixed costs, how much profit does the monopolist make? How much consumer surplus is generated? c.If the monopolist were able to first-degree price discriminate instead, how much would he produce? How much profit would he make? How much consumer surplus is generated? d.Which outcome is more efficient and why?

If a monopolist faced a downward sloping average cost curve that lies fully above market demand, he will not produce if he can only charge a single per-unit price, but it would also be inefficient for him to produce.

Since revenue increases with increases in price when demand is relatively inelastic, monopolists produce on the inelastic part of demand.

The more consumer surplus is generated in a market dominated by a single monopoly, the more efficient the outcome.

If a monopolist were allowed (and able) to first degree price discrimination, there would be no efficiency/equity tradeoff so long as the government can tax the profits of the firm and redistribute the tax revenues in a lump sum way.

Consider a commonly owned fishery in a market with no other fisheries.Given the Tragedy of the Commons, it is more efficient to let a single firm take over the fishery even if that gives the firm monopoly power.

Consumers prefer inefficient third degree price discrimination to efficient first degree price discrimination.

Under which of the following monopoly pricing methods is the average price paid by a consumer equal to the marginal willingness to pay by that consumer:

For any constant-elasticity market demand curve, a monopolist is profit maximizing regardless of what quantity he produces so long as marginal costs are zero.

Unlike perfectly competitive firms, monopolists produce where marginal revenue intersects marginal cost.

One way to deal with the efficiency problem of monopolies is to tax the profits of monopolists.

What are some obstacles to price discrimination that a monopolist who is protected by high barriers to entry might face?

There are many policies that can discipline market power, but often the most powerful discipline comes from potential consumers.