SIDES GAME
Profit
Max.
Q
40
Unregulated
Price
3
Social
Optimal Price
~2.3ish
Fair Return
Price
2.1ish
Unregulated
Profit
$40
Fair Return
Profit
ZERO duh
P(AR) = ATC
Unit Elastic Q
50 (MR=0)
Outline DWL
Monopolistic Competition
• LRATC curve will be TANGENT to D/AR curve
Fair Return Price will allow the
Monopolist to earn
A.
B.
C.
D.
E.
No accounting profit
No economic profit
A normal profit
No economic loss
A little economic profit
What will happen to the unregulated
monopolist’s quantity of output if Total
Fixed Cost increases?
NOTHING!!!
Which type of efficiency do
monopolistically competitive firms
produce?
• Allocative nope
• Productive nope
What is the gap between the profit
max. Q and the Productively efficient
Q for a monopolistically competitive
firm called?
Excess capacity
Which market structures earn zero
long run economic profit?
• Perfect and monopolistic competition
Collusion that occurs without actual
communication between firms is
called
• TACIT
Which market structure has highly
interdependent firms?
• OILIGOPOLY
This occurs in a payoff matrix when
neither player acting unilaterally can
improve his payoff.
NASH Equilibrium
A player who is best off playing a
single strategy regardless of his
competitor's strategy has this.
Dominant Strategy
What is White’s Dominant
Strategy? HIGH
• HIGH
A monopoly should decrease
production if
• MR < MC
What is the Nash Equilibrium?
• This is a dominant
Strategy Nash
Equilibrium.
Both White and
Yellow have a dominant
Strategy of “high”
What is the Dominate Strategy
Equilibrium?
• See
• Previous
• Slide
Does price discrimination increase or
decrease consumer surplus?
• decrease
Which market structure ALWAYS
features product differentiation?
• Monopolistic competition
Colluding oligopolistic firms are called a
• A cartel
Cartels (without cheating) operate like
• monopoly
Which will change output?
•
•
•
•
Lump sum tax
Lump sum subsidy
Per unit tax
Per unit subsidy
• Per unit shifts MC which changes the profit
maximizing quantity.
• Lump sum only affect fixed and total costs, which
will alter profit, but not quantity.
Consumer surplus under a monopolist
employing perfect price
discrimination?
ZERO!
Unregulated monopolies sell less at a higher
price
What grade will you earn on
tomorrow’s test?
• If you know all of this stuff, then the answer is
an “A”
• Look up FRQs from past tests
• Check out some youtube videos for any
concept your unsure of.
• Read through the appropriate unit of your
CRACKING THE AP MICROECONOMICS EXAM