1) Calculate Dead Weight loss
½ x b x h, is the area beneath the chosen point from the demand curve until the point of MR=MC
2) Characteristics of Monopoly, Perfect Competition, Monopolistic Competition, Oligopoly
Monopoly: Competitive market:
- single seller - large number of buyers
- unique product - undifferentiated products
- high barriers to entry - complete information about prices
- has no close substitutes - equal access to resources
- has market power - no market power, no barriers
- enables to influence its price
Monopolistic Competition: Oligopoly:
- many small sellers - few firms/sellers
- differentiated products are part of non-price - formidable barriers to entry
competition - homogenous/ differentiated products
- easy entry & exit
3) Why does monopoly have to obey the law of demand ?
Monopoly firms face a downward-sloping demand curve. Thus, the law of demand does apply in a
monopoly. The reason why a monopoly firm faces a downward-sloping demand curve is that the
firm is a price setter and in order to sell more of its output, the firm has to lower its selling price.
4) Different type of price discrimination
- First Degree (PERFECT PRICE DISCRIMINATION)
- charges each person the maximum they are willing to pay for each unit of the good
- ideal situation for each firm, very bad for consumers
- extracts all of the consumer surplus, gaining the highest possible profit
- there is no dead weight loss
- buyers cannot know the price perfectly
- Second Degree (NON-LINEAR PRICING)
- price depends on how much you buy
- the law of demand predicts that buyers are willing to pay more for the first unit than for the
second and so on
- Third Degree (GROUP PRICE DISCRIMINATION)
- different groups of people get charged different prices
- works the certain groups of buyers have a different average willingness to pay for the same
good
- groups with a higher willingness to pay get charged a higher price, groups with a lower
willingness to pay charged a lower price
5) What is the meaning of strategy & interdependence
Strategy: a situation in which a person, when choosing among alternative courses of action, must
consider how others might respond to the action he takes.
Interdependence: is a condition in which an action by one firm may cause a reaction of the part of
other firms.
6) In the short run what markets make positive economic profits?
All markets make a positive economic profit in the short run
½ x b x h, is the area beneath the chosen point from the demand curve until the point of MR=MC
2) Characteristics of Monopoly, Perfect Competition, Monopolistic Competition, Oligopoly
Monopoly: Competitive market:
- single seller - large number of buyers
- unique product - undifferentiated products
- high barriers to entry - complete information about prices
- has no close substitutes - equal access to resources
- has market power - no market power, no barriers
- enables to influence its price
Monopolistic Competition: Oligopoly:
- many small sellers - few firms/sellers
- differentiated products are part of non-price - formidable barriers to entry
competition - homogenous/ differentiated products
- easy entry & exit
3) Why does monopoly have to obey the law of demand ?
Monopoly firms face a downward-sloping demand curve. Thus, the law of demand does apply in a
monopoly. The reason why a monopoly firm faces a downward-sloping demand curve is that the
firm is a price setter and in order to sell more of its output, the firm has to lower its selling price.
4) Different type of price discrimination
- First Degree (PERFECT PRICE DISCRIMINATION)
- charges each person the maximum they are willing to pay for each unit of the good
- ideal situation for each firm, very bad for consumers
- extracts all of the consumer surplus, gaining the highest possible profit
- there is no dead weight loss
- buyers cannot know the price perfectly
- Second Degree (NON-LINEAR PRICING)
- price depends on how much you buy
- the law of demand predicts that buyers are willing to pay more for the first unit than for the
second and so on
- Third Degree (GROUP PRICE DISCRIMINATION)
- different groups of people get charged different prices
- works the certain groups of buyers have a different average willingness to pay for the same
good
- groups with a higher willingness to pay get charged a higher price, groups with a lower
willingness to pay charged a lower price
5) What is the meaning of strategy & interdependence
Strategy: a situation in which a person, when choosing among alternative courses of action, must
consider how others might respond to the action he takes.
Interdependence: is a condition in which an action by one firm may cause a reaction of the part of
other firms.
6) In the short run what markets make positive economic profits?
All markets make a positive economic profit in the short run
