344PART FIVEFIRM BEHAVIOR AND THE ORGANIZATION OF INDUSTRYconsumers who otherwise would not buy it. In theextreme case of perfect price discrimination, thedeadweight losses of monopoly are completelyeliminated. More generally, when price discrimination isimperfect, it can either raise or lower welfare comparedto the outcome with a single monopoly price.monopoly, p. 316natural monopoly, p. 318price discrimination, p. 336Key Concepts1.Give an example of a government-created monopoly. Iscreating this monopoly necessarily bad public policy?Explain.2.Define natural monopoly. What does the size of amarket have to do with whether an industry is a naturalmonopoly?3.Why is a monopolist’s marginal revenue less than theprice of its good? Can marginal revenue ever benegative? Explain.4.Draw the demand, marginal-revenue, and marginal-costcurves for a monopolist. Show the profit-maximizinglevel of output. Show the profit-maximizing price.
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