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Define: Short Run
Short Run is a timeframe in which at least one of the resources used in production cannot be changed.
Exit and Entry are...
Exit and Entry are Long-Run Phenomena
Define: Long Run
In the long run, all quantities of resources can be changed.
Entry and exit occur whenever...
firms are earning more or less than “normal profit” (zero economic profit).
If firms are earning more than normal profit...
... other firms will have an incentive to enter the market.
If firms are earning less than normal profit...
... firms in the industry will have an incentive to exit the market
Define: Economic Efficiency
No one could be made better off without making someone else worse off. Economists refer to this result as economic efficiency
Firms produce where...
Firms produce where marginal cost equals price.
A zero economic profit is ...
normal profit
Define Consumer Surplus
Consumer surplus: the difference between what the consumers would have been willing and able to pay for a product and the price they actually have to pay to buy the product.
Define Producer Surplus
Producer surplus: the difference between the price firms would have been willing and able to accept for their products and the price they actually receive for them.
What is a Monopoly?
A monopoly is a market structure in which there is a single supplier of a product
Give an Example of a Monopoly in the U.S.
U.S. Postal Service, local utility companies, local cable providers, etc.
Monopolies often arise as a result of...
Barriers to Entry
Define: Barrier to Entry
Barrier to entry: anything that impedes the ability of firms to begin a new business in an industry in which existing firms are earning positive economic profits.
What are the three General classes of Barriers to entry?
-Natural barriers, the most common being economies of scale 
-Actions by firms to keep other firms out
-Government created barriers
In some industries, the larger the scale of production,
the lower the costs of production.
Entrants are not usually able to enter the market assured of or
capable of a very large volume of production and sales.
Give an Example of Economies of Scale:
Examples are electric power companies and other similar utility providers.
Entry is barred when...
one firm owns an essential resource.
Examples of Firms barring entry...
Examples are inventions, discoveries, recipes, and specific materials.
Microsoft owns Windows, and has been challenged by the U.S. Dept. of Justice as a monopolist.
As incentives to innovation, governments often grant...
patents, providing firms with legal monopolies on their products or the use of their inventions or discoveries for a period of 17 years.
List the Five Different Types of Monopolies:
  • Natural Monopoly
  • Local Monopoly
  • Regulated Monopoly
  • Monopoly Power
  • Monopolization
Define: Natural Monopoly
A monopoly that arises from economies of scale. The economies of scale arise from natural supply and demand conditions, and not from government actions.
Define: Local Monopoly
a monopoly that exists in a limited geographic area.
Define: Regulated Monopoly
a monopoly firm whose behavior is overseen by a government entity.
Define: Monopoly POwer
market power, the power to set prices
Define: Monopolization
an attempt by a firm to dominate a market or become a monopoly.
In any market, the industry demand curve is...
downward-sloping. This is the result of the law of demand.
Critical to understanding the profit maximization of the monopolist is remembering that...
...the monopolist IS the industry because it is the sole producer.
The Monopolist Demand Curve is the same as...
...The industry demand curve. Downward sloping.
Equation: MR (Marginal Revenue)
MR equals the Change in Total Revenue divided by the Change in Quantity
MR is less than price for...
A Monopoly Firm.
The MR is less than price and declines as output increases because...
...the monopolist must lower the price in order to sell more units (because the demand curve slopes downward).
Whenever MR is greater than AR...
AR Rises
Whenever MR is less than AR
AR falls
Average Revenue is equal to...
Price
the AR curve is the
demand curve
With a downward-sloping demand curve, prices...
s fall as output increases. This means that AR falls.
MR Must Always Be
Less than AR
The monopoly firm’s market power will allow the firm to
achieve above-normal profits.
A monopolist will suspend operations in the short run if
its price does not exceed the average variable cost at the quantity the firm produces
A monopolist will shut down permanently if...
... revenue is not likely to equal or exceed all costs in the long run.
if a monopolist makes a profit...
barriers to entry will keep other firms out of the industry
Name the Three Myths of Monopolies
1. A monopolist can charge any price it wants and will reap unseemly profits by continually increasing the price. 2. A monopolist is not sensitive to customers. 3. A monopolist cannot make a loss.
Define Price Discrimination
Under certain conditions, a firm with market power is able to charge different customers different prices.
For price discrimination to work...
... the firm cannot be a price taker
For Price Discrimination, a firm must be able to "Segment the Market"
That is, the firm must be able to:
  • Separate the customers
  • Prevent resale of the product
In a Monopolisitc Competition firms compete more on...
product differentiation than on price
For Monopolistic Competition, entering firms produce what kind of products...
close substitutes, not an identical or standardized product
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