Chapter Review: Key Points. Translate the text from English into Russian in writing paying particular attention to the translation of the economic terms in bold as well as words and

MONOPOLY

Text translation.

Translate the text from English into Russian in writing paying particular attention to the translation of the economic terms in bold as well as words and phrases relevant to the subject of the text. Read out your translation in class andintroduce the necessary corrections.

Chapter Objectives

After you have read and studied this chapter, you should be able to write a brief paragraph describing the pricing and output decisions faced by firms with some degree of monopoly power; list some barriers to entry that may permit the monopolist to realize long-run economic profits; explain the effects of price discrimination and describe why inefficiency and inequity may be problems if monopoly power is widespread.

Chapter Review: Key Points

1 An unregulated monopoly controls the output and price of a good for which there are no close substitutes.

2 Few monopolies are unregulated, but all firms with any ability to control prices have market power. Models of pure monopoly provide insights into the behavior of the many firms with this power.

3 Barriers to entry help firms maintain market power. Regulatory barriers are established by government policies, and include such things as patents or licenses. Strategic barriers include excessive model changes or advertising. Natural barriers result from extreme economies of scale, where average costs decline over a large range of output relative to market demand. A natural monopoly occurs if one firm can achieve the minimum efficient scale (MES) only when producing for the entire market.

4 A non-discriminating monopolist's marginal revenue is less than its price. Marginal revenue equals the price the monopolist receives from the sale of the additional unit minus the revenue lost because prices must be reduced on all other units sold. Market power causes the marginal revenue curve to lie below the demand curve.

5 The demand for a good is elastic when output is below the quantity where marginal revenue is zero. Demand is unitarily elastic when marginal revenue is zero. Demand is inelastic for outputs above the point where marginal revenue is zero.

6 A monopolist maximizes profit (or minimizes loss) by selling that output where marginal revenue equals marginal cost. The price charged corresponds to the maximum price from the demand curve at this MR = MC output level.

7 Monopolists' profit-maximizing (or loss-minimizing) levels of output do not normally occur at the minimum points on average total cost curves. Equilibrium output levels can be less or more than that which minimizes average total cost.

8 If a monopolist is able to maintain its monopoly position in the long run, then pricing, output, and economic profit will reflect variations in demand. A monopolist may also choose inefficient, but comfortable policies, a problem known as X-inefficiency.

9 Price discrimination entails sales of essentially the same good at different prices when these differences are not justified by variations in costs. Price discrimination occurs in airline fares, theater ticket prices, charges for medical and dental services, and in many other areas.

10 Effective price discrimination requires a firm to have some market power and the ability to separate customers into groups with different price elasticities of demand. It must also prevent arbitrage - theselling of the good to high-price customers by low-price customers.

11 Price discrimination boosts a firm's total profit. Perfect price discrimination allows a firm to reap as profit all the consumer surplus that could be derived from the product.

12 A non-discriminating monopoly is less allocatively efficient from society's point of view than are competitive industries. A monopolist typically produces less than if the industry were purely competitive, and sells at a higher price. Price discrimination may reduce this inefficiency but it intensifies issues of inequity in the distribution of income. (3074 digits)

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