Microeconomics 10
Market Power: Monopoly and Monopsony
Market Power: Monopoly and Monopsony
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Flashcards
Monopoly
Market with only one seller
Monopsony
Market with only one buyer.
Market power
Ability of a seller or buyer to affect the price of a good.
marginal revenue
Change in revenue resulting from a one-unit increase in output.
Multiplant firm (2 conditions)
Step 1: Marginal Cost at both plants the same.
Step 2: MR=MC
Lerner index of monopoly power
Measure of monopoly power calculated as excess of price over marginal cost as a
fraction of price.
Determination of a firms elasticity of demand (3 factors)
1. Elasticity of market demand
2. Number of firms in the market
3. Interaction among firms
rent seeking
Spending money in socially unproductive efforts to acquire, maintain, or exercise monopoly.
natural monopoly
Firm that can produce the entire output of the market at a cost lower than what it would be if there were several firms.
