Econ 101 - Final Exam Review

Econ 101 - Final Exam Review - Economics 101 Fall 2007...

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Economics 101 Fall 2007 Final Review Sheet Prof. Kelly Note: This is a list of important and key points for topics after the second midterm. This list should be used together with the previous two review lists, as the final will be cumulative. As before, these review sheets should serve as a checklist for you to see whether you have studied everything you need to for the final. Good luck! MONOPOLY 1. Definition and fundamental sources of Monopoly. a. Barriers to entry (examples?) i. exclusive ownership of a key resource ii. exclusive right assigned by the government iii. economies of scale iv. threat of force or sabotage 2. Natural Monopoly a. arises where it’s more efficient for a single firm to serve the society. (Examples? What will happen if we have more than one firm in the market?) b. regulation 3. Profit Maximization Condition (for a single-price monopoly): MR=MC. a. The demand curve facing a monopoly is the same as the industry demand curve b. MC and ATC are similar to those for perfectly competitive firms c. At the optimal point, MR is less than the price: MR<P (why?) d. If demand is linear (P=a-bQ, where a and b are positive constants), then marginal revenue is: MR = a-2bQ. e. A monopolist can earn a positive economic profit even in the LR (there is no entry!) 4. Inefficiency of Monopoly. a. Compared to an identical perfectly competitive industry, output is less and price is higher with a monopoly b. Less output and higher price will result in a loss in Consumer Surplus (CS) relative to the CS found under perfect competition and an increase in Producer Surplus (PS) relative to the PS found under perfect competition---and there will be a dead-weight loss (DWL) with a monopoly c. DWL, which measures the inefficiency of the monopoly, is graphically the area between the demand and MC curves for units between the monopoly quantity and the efficient quantity. 5. Ways for policy makers to correct the inefficiency. a. antitrust laws
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b. regulations (AC regulation and MC regulation) c. public ownership 6. Price Discrimination--selling different units of a good/service for different prices. a. price discrimination captures some of the CS for the monopolist and increases the monopoly’s total revenue b. forms of price discrimination i. First-Degree price discrimination ii. Second-Degree price discrimination iii. Third-Degree price discrimination OLIGOPOLY 1. Definition---a market structure in between monopoly and perfect competition. An oligopoly is a market structure where only a few sellers offer similar or identical products. (How is it different from the Monopolistic Competition? Examples?) 2. Key feature: tension between cooperation and self-interest. a.
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Econ 101 - Final Exam Review - Economics 101 Fall 2007...

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