Econ 302 Final Cheat Sheet
Important Things To Know * Markup = P-MCP= -1price elasticity of demand * Market demand = firm’s demand for a monopoly ONLY * TR=aQ-bQ2 and MR=a-2bQ * Monopoly output is ALWAYS LESS than competitive output * Colluding leads to the ideal situation (illegal) * MC=WMPL * X=aa+b×MPx or Y=ba+b×MPy * Y = M/Py – (Px/Py)X * Isocost Line: C(Q)=wL+rK | Variation: K=TCr-wrL | Slope: -(w/r) * Isoquant Slope: -(MPL/MPK) | MPLMPK=aKbL=∆K∆L * Optimal cost-minimization: MRTS=MPLMPK=wr
Questions (word for word from quizzes) * A firm has market power when it can profitably charge a price that is above its MC * The more elastic is the demand for a product, the closer is MR to the price * When a monopolist maximizes its profit by selling a positive amount, its MR = MC at that quantity * A firm’s markup/price-cost margin is the amount by which its price exceeds its MC, expressed as a percentage of its price * A firm’s markup over its MC is GREATER the less elastic is the demand curve * The deadweight loss from monopoly pricing is the amount by which aggregate surplus falls short of its maximum possible value, which is attained in a perfectly competitive market * A monopolist faces a downward sloping demand curve and by lowering the quantity he sells, he can charge more * A market is a natural monopoly when a good is produced most economically by one firm * A loss leader is a product that is sold at a price below its direct MC to encourage sales of a complementary good * A firm engages in price discrimination when it charges difference prices for different units of the same good AND charges a higher price of units for which the willingness to pay is high than for those units of which WTP is low * A monopoly can perfectly price discriminate if it knows perfectly the customer’s WTP for each unit it sells and can charge a different price for each unit * Price discrimination is based on
Questions (word for word from quizzes) * A firm has market power when it can profitably charge a price that is above its MC * The more elastic is the demand for a product, the closer is MR to the price * When a monopolist maximizes its profit by selling a positive amount, its MR = MC at that quantity * A firm’s markup/price-cost margin is the amount by which its price exceeds its MC, expressed as a percentage of its price * A firm’s markup over its MC is GREATER the less elastic is the demand curve * The deadweight loss from monopoly pricing is the amount by which aggregate surplus falls short of its maximum possible value, which is attained in a perfectly competitive market * A monopolist faces a downward sloping demand curve and by lowering the quantity he sells, he can charge more * A market is a natural monopoly when a good is produced most economically by one firm * A loss leader is a product that is sold at a price below its direct MC to encourage sales of a complementary good * A firm engages in price discrimination when it charges difference prices for different units of the same good AND charges a higher price of units for which the willingness to pay is high than for those units of which WTP is low * A monopoly can perfectly price discriminate if it knows perfectly the customer’s WTP for each unit it sells and can charge a different price for each unit * Price discrimination is based on