finalexamreview - Econ 251 Final Exam Review Post-Exam #2...

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Econ 251 Final Exam Review
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Post-Exam #2 Material Chapters 11-15 Chapter 11 = Monopoly Chapter 12 = Monopolistic Competition and Oligopoly Chapter 13 = Externalities Chapter 14 = Public Goods and Common Resources Chapter 15 = Income Inequality
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Monopoly (Chapter 11) Characteristics of monopoly One seller No close substitutes Significant barriers to entry Firm demand is the entire market demand curve MR < Price because a monopolist has to lower prices to sell output, unlike price- taking firms in perfectly competitive markets MR and elasticity MR < 0 demand is inelastic MR > 0 demand is elastic MR = 0 demand is unit elastic Max profit where MR = MC, but Price determined by demand curve Profit can be positive even in the long run because there is no entry Rent-seeking behavior can reduce long run profit. Monopolies do not produce a level of output that satisfies allocative efficiency Monopolies produce less output and charge more than a competitive market would
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Price Discrimination Perfect price discrimination D = MR since consumers are all charged exactly what they’re willing to pay Results in efficient level of output, but no consumer surplus Charge different prices based on the quantities you purchase The first units you buy are more of a necessity, so you’re willing to pay more for those (demand for those first units is less elastic) Charge different prices based on the group to which you belong Students and senior citizens get discounts because their income is limited
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This note was uploaded on 04/07/2008 for the course ECON 251 taught by Professor Blanchard during the Spring '08 term at Purdue University-West Lafayette.

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finalexamreview - Econ 251 Final Exam Review Post-Exam #2...

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