Chapter 15 & 16 Study Guide Micro student copy.docx - Chapters 15 16 Study Guide AP Microeconomics Key Concepts monopoly natural monopoly price

Chapter 15 & 16 Study Guide Micro student copy.docx -...

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Chapters 15& 16 Study Guide AP Microeconomics Key Concepts monopoly natural monopoly price discrimination oligopoly monopolistic competition collusion cartel Nash equilibrium game theory prisoner’s dilemma dominant strategy Questions 1. Are the monopolist’s profits part of the social cost of monopoly? Explain. 2. What are the four ways that policymakers can respond to the problem of monopoly? 3. Should antitrust laws be utilized to stop all mergers? Why? 4. What are some of the problems associated with regulating the price charged by a natural monopoly? 5. Is perfect price discrimination efficient? Explain. Who receives the surplus? 6. What is the necessary condition for a monopolist to be able to price discriminate? 7. What are the advantages and disadvantages of patents?
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8. Why can a monopoly earn an economic profit in the long run but a perfectly competitive firm cannot? 9. How does the quantity produced and the price set by a single-price monopoly compare to set in a perfectly competitive market? Does a monopoly produce the allocatively efficient quantity of output? 10. Explain the effect of price discrimination on consumer surplus and economic profit. 11. a. What are the three sources of the barriers to entry that allow a monopoly to remain the sole seller of a product? b. What is the entry barrier that is the source of the monopoly power for the following products or producers? List some competitors that keep these products or producers from having absolute monopoly power. i. United States Postal Service ii. Perrier Spring Water iii. Prozac (brand name drug) iv. DeBeers Diamonds v. Principles of Economics , by N. Gregory Mankiw (your textbook) vi. Edison Power Company 12. Suppose a firm has a patent on a special process to make a unique smoked salmon. The following table provides information about the demand facing this firm for this unique product. Pounds of Salmon Price Total Revenue Marginal Revenue 0 $20 1 18 2 16 3 14 4 12 5 10 6 8 7 6 a. Complete the table above. b. Plot the demand curve and marginal revenue curve below.
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c. Suppose that there are no fixed costs and that the marginal cost of production of smoked salmon is constant at $6 per pound. (Thus, the average total cost is also constant at $6 per pound) What is the quantity and price chosen by the monopolist? What is the profit earned by the monopolist? Show your solution on the graph you created in part (b) above.
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