Monopoly example #64743

Barriers to Entry Government-Created Monopolies

Barriers to Entry Economies of Scale

Barriers to Entry Exclusive Ownership of a Key Resource

TR = P x Q TR=total revenue P= price Q= quantity

MR = ΔTR / ΔQ MR= marginal revenue ΔTR= change in total revenue ΔQ = change in quantity

More output is sold, so Q is higher, which tends to increase total revenue.

The price falls, so P is lower, which tends to decrease total revenue.

(Initial price - New price) x Initial Quantity

equals its price. P = MR = MC

less than its price. P > MR = MC

Profit = TR - TC TR = total revenue TC = total cost

Profit = (P - ATC) x Q P = price ATC = average total cost Q = quantity

marginal revenue equals marginal cost

Price Discrimination? No

Price Discrimination? Yes

Price Discrimination? No Because Horizon Wireless is offering the different add-ons via a la carte pricing, this is not an example of price discrimination. Everyone is subject to the same pricing regardless of his or her calling plan. If the price of a text messaging package were different for a customer with a more expensive calling plan, then Horizon Wireless might be attempting to identify various consumer types and exploit the differences in their willingness to pay.

Price Discrimination? Yes This pricing scheme by Southeast Airlines is a way to price discriminate between last-minute-getaway consumers and business consumers. Business travelers do not have flexibility regarding when and where they travel—if their company meeting is in New York City on a Tuesday, they must get to New York City that morning. Therefore, Ping deals are meant to attract a consumer who is debating a last-minute trip but doesn't necessarily need to go—in other words, that consumer has a lower willingness to pay for a flight and might be willing to purchase a ticket for the special Ping price.

Total surplus is not maximized in Single-price Monopoly Barefeet produces a quantity less than the efficient quantity of Ooh boots in Single-price Monopoly There is not deadweight loss associated with the profit-maximizing output in Perfect Price Discrimination

False

True

Turn the company into a public enterprise. When a natural monopoly, such as an electric utility, is forced to sell itself to a public institution, the private monopoly will become a public enterprise. Such a policy option, which might be chosen by a government that views electricity as a public good, is generally the European approach to providing utilities. A potential drawback of this approach is that government managers may have little incentive to keep costs down.

Do nothing at all. If a computer company controls a sizable share of the operating system market, then consumers may believe that the lack of choice or competition is harmful. Yet the government may not have enough evidence to act against the company, or it may be led by politicians who believe in limited government interference in the market. Either situation can lead the government to do nothing at all about a monopoly

Use the law to increase competition. If a telecommunications company controls the market, the government may find it necessary to split up the firm. Using the power granted by antitrust laws, the government can increase competition and help consumers. One example of this occurred when the government split up AT&T into eight smaller companies in the 1980s.