Give a complete and concise definition of each of the following terms.
a. Deliberately erected entry barriers
b. Inefficiency of monopoly
c. Price discrimination
d. Profit-maximizing equilibrium for a monopolist
What will be an ideal response?
a. Deliberately erected entry barriers are any actions taken for the purpose of preventing the entry of rivals. Such actions, for example, may take the form of costly lawsuits against rivals or exorbitantly expensive advertising campaigns. Illegal strong-arm tactics would also fall in the same category.b. A monopoly is inefficient because it charges a higher price than does a competitive industry and sells a lower quantity. Therefore, the price (or marginal utility) of the last unit bought generally exceeds the marginal cost. From a social perspective, output is too little.c. Price discrimination is the sale of a given product at different prices to different customers of the firm, when there is no difference in the cost of supplying different customers. Prices are also discriminatory if it costs more to supply one customer than another, but they are charged the same price.d. The profit-maximizing monopolist is in equilibrium when he or she is producing where MR = MC but, because MU = P and MR lies below AR, MC = MR < P so that MC < MU.
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