Microeconomics I
Fiches de réveisions
Fiches de réveisions
Kartei Details
| Karten | 336 |
|---|---|
| Sprache | English |
| Kategorie | VWL |
| Stufe | Universität |
| Erstellt / Aktualisiert | 28.05.2019 / 02.03.2025 |
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Short-run implications for taxation: graph
In a short-run equilibrium, the burden of a sales or an excise tax is typically shared by both buyers and sellers, tax incidence of the tax depending upon the own-price elasticities of demand and supply
Long-run implication for taxation: graph
Long-run fixed cost
An input (e.g. an operating license) that is fixed in the long-run causes a long-run fixed cost, F
Fixed inputs and economic rent: graph
Economic rent is
the payment for an input that is in excess of the minimum payment required to have that input supplied
Monopoly VS perfect competition
Perfect Competition Monopoly
Many small sellers One seller
Price-taking sellers Price-making seller
Many small buyers (price Many small buyers (price takers)
takers)
Homogeneous products No other product
Sellers do not behave Sellers do not behave strategically
strategically
Free entry No entry
Monika Mrazov´ a´ Micro I: Monopoly
Profit maximization
Profit maximization and marginal revenue
Profit maximization and demand elasticity
Suppose the monopolist’s marginal cost of production is constant, at $k/output unit
How does the price charged by the monopolist vary with the own-price elasticity of demand?
Example: Linear Demand and Monopoly
Suppose that the monopolist faces a linear demand curve: p(y) = a - by
Markup pricing
Application: Impact of Taxes on a Monopolist
Consider a monopolist with constant marginal cost. What
happens to the market price when a quantity tax is imposed?
I If the monopolist faces a linear demand
I If the monopolist faces a constant-elasticity demand
What if a profits tax is imposed?
A market is Pareto efficient if
it achieves the maximum possible total gains-to-trade
Otherwise a market is Pareto inefficient
Efficient output level
The efficient output level yc satisfies p(y) = MC (y)
Total gains-to-trade is maximized
Monopoly: Inefficiency and Deadweight Loss
A natural monopoly arises when
the firm’s technology has economies-of-scale large enough for it to supply the whole market at a lower average total production cost than is possible with more than one firm in the market.
Minimum efficient scale
Minimum efficient scale
Entry Deterrence by a Natural Monopoly
First-degree price discrimination (perfect price discrimination)
different units of output are sold for different prices and these prices may differ from person to person
Second-degree price discrimination
different units of output sold for different prices, but every individual who buys the same amount pays the same price
Third-degree price discrimination
output sold to different people at different prices, but every unit sold to a given person sells for the same price
First-Degree Price Discrimination and Efficiency
The monopolist captures all surplus (the monopolist gets the maximum possible gains from trade)
The consumers’ gains are zero
First-degree price discrimination is Pareto-efficient (efficient amount of output is supplied)
Second-Degree Price Discrimination details
Consumers are discriminated according to an unobservable characteristic: their prefereces ! The monopolist gives the consumers an incentive to self select (screening by self-selection)
Second-Degree Price Discrimination: examples
I ‘Non-linear pricing’
I Quantity discounts
I Quality differentiation (first class vs second class...)
I High deductible and low premium vs fuller coverage with higher premium for insurance
Third-Degree Price Discrimination: examples
Student discounts, senior citizens’ discounts etc.
Third degree price discrimination: first order condition problem
Third-Degree Price Discrimination: Elasticity of Demand
Third-Degree Price Discrimination: Linear Demands
Suppose that a monopolist producing at zero marginal cost faces two markets with linear demand curves:
Third-Degree Price Discrimination: global exercise
Two-parts tariffs
Large number of firms selling identical products
demand curve facing any one of the firms is essentially flat (i.e. each firm must sell its product for whatever price the other firms are charging)
product differentiation
Firms selling similar but not identical products
! they may be able to raise their price
! the more a product is differentiated from the other products, the more monopoly power the firm has
