1. Why do monopolies exist?
Barriers to entry:
- A key resource is owned by a single firm
- The government gives a single firm the exclusive right to produce some good or service
- The costs of production make a single producer more efficient than a large number of producers

2. What are the different types of monopolies?
Government-created monopolies: government has given one person or firm the exclusive right to sell some good or service
ex. patent (exclusive right to manufacture and sell) and copyright (noone can print and sell the work without permission) laws
Benefits: increased incentive for creative activity

Natural monopolies: A single firm can supply a good or service to an entire market at a smaller cost than could two or more firms. Arises when tehre are economies of scale over the relevant range of output.
ex. public goods and common resources (bridge, etc)


3. How and why is DeBeers a monopoly?
DeBeers is a monopoly because they have control of 80% of the worlds production of diamonds giving them substantial influence over the market price. Also the product they producer, diamonds, is often viewed as unique and have no substitutes and so they gain even more market power.

The diamonds are viewed as unique because DeBeers advertises diamonds with slogans like diamonds are forever, this causes consumers to think diamonds must be diffrent than other precious gems.

4. How is MR different in monopoly than in PC? Why?
In a monopoly, the MR does not equal the D like in PC.
The MR has a different slope than the D curve and is under the D.
The MR also intersects the x-axis and determines the elasticity.

5. How is the demand curve in monopoly different than in PC? Why?
In PC, the D curve is a horizontal line. In a monopoly, the D curve is downward sloping

6. How and where to monopolies maximize profits?
Monopolies should increase output up to the level where the marginal cost curve intersects the marginal revenue curve, in order to maximize its profits

7. Why do we say that monopolies are inefficient?
They work in their profit maximization point or MR = MC, and this point is on the downward slopping section of their ATC curve in monopolies making them less efficient.

8. Why don't monopolies have supply curves?
Monopolies will always try to produce at an output level that maximizes profits. therefore, their supply is determined by where MR intersects MC
This means that the MC curve acts as the firm's supply curve

9. Discuss deadweight loss and monopoly.

10. What are the social cost of monopolies?
Because a monopoly's price is higher than the market sets it as, consumer welfare is hurt, while the producers welfare increases. However, there is no loss in total welfare, just a shift towards producer welfare

In a government created monopoly, the firm must often pay additional costs, such as lobbying fees, to maintain their monopoly. These costs are another type of deadweight loss, neither the consumer or the producer benefits

11. How are monopolies controlled by the government?
Governments regulate monopolies by taxing and subsidizing them to influence their prices. Sometimes the govt. will act in the consumers best interests, and other times it will act in the industry's best interests. An effective regulation finds an equilibrium point between the two.

12. What is price discrimination?
When prices are different for different people in society, usually due to their social background and their income. This means that for example water might be cheaper for the poor and more expensive for the rich. It's prices do not have to anything with the costs.

13. How does price discrimination relate to producer and consumer surplus?
Price discrimination may occur more when consumer surplus is lower, since less consumers will have the ability to pay a certain price. Also, price discrimination may not occur as often if producer surplus is lower, since they cannot cover their costs by altering prices