Diagram evals

• What is the purpose of the Monopoly Diagram?

  To evaluate monopoly and price determination
• Why are monopolists considered dynamically efficient?

  They make supernormal profit for investment
• What does it mean for monopolists to be productively inefficient?

  They produce above the lowest point of AC
• How do monopolists exhibit allocative inefficiency?

  By restricting output to charge higher prices
• When is the Good Monopoly vs Selfish Diagram used?

  When evaluating monopolies and government breakup
• Under what condition does a monopoly outperform perfect competition?

  If it invests profits in cost-saving technology
• When does perfect competition outperform a monopoly?

  If the monopoly acts selfishly and restricts output
• What is the primary objective of private firms in a natural monopoly?

  To maximize profit
• What output level do private firms produce at in a natural monopoly?

  At Qpr with a price of Ppr
• How do state-owned enterprises operate in a natural monopoly?

  They produce at Qsn to satisfy consumers
• What happens if a private firm produces at Qsn?

  It requires a subsidy to cover losses
• What does privatization represent in a natural monopoly context?

  The movement from Qsn to Qpr
• What does the high MES - Large vs Small Firm Diagram illustrate?

  Cost-saving benefits of large firms
• How do monopolies benefit from economies of scale?

  They exploit EOS to become allocatively efficient
• What is a natural barrier to entry in certain industries?

  Cost advantages to larger firms
• When is the Price Discrimination Diagram used?

  To demonstrate second-degree price discrimination
• What does the Price Discrimination Diagram show about ticket pricing?

  Lower prices for tickets with spare capacity
• How do firms utilize price discrimination based on elasticity?

  Increase prices for inelastic consumers
• What is a characteristic of firms in perfect competition?

  They are dynamically inefficient
• Why are firms in perfect competition productively efficient?

  They produce at the lowest point of AC
• How do firms in perfect competition achieve allocative efficiency?

  By producing where AR = MC
• When is the Monopolistic Competition SR Diagram used?

  When evaluating monopolistic competition
• What characterizes monopolistically competitive firms in the short run?

  They are dynamically inefficient due to supernormal profit
• How do monopolistically competitive firms exhibit allocative inefficiency?

  By restricting output to charge higher prices
• When is the Monopolistic Competition LR Diagram used?

  When evaluating monopolistic competition in the long run
• What characterizes monopolistically competitive firms in the long run?

  They lack supernormal profit for investment
• How do monopolistically competitive firms demonstrate allocative inefficiency in the long run?

  By producing where P > MC
• When is the Kinked Demand Curve Diagram used?

  When evaluating oligopolies
• What does the Kinked Demand Curve illustrate about price in an oligopoly?

  Price is an ineffective tool for differentiation
• Why can't firms increase prices in an oligopoly?

  Elastic response leads to decreased total revenue
• Why can't firms decrease prices in an oligopoly?

  Rivals copy price cuts, limiting gains
• What are the implications of price being ineffective in an oligopoly?

  Encourages non-price competition and collusion
• What does the Game Theory Table illustrate for Firm A and Firm B?

  Revenue outcomes based on pricing strategies
• What happens when Firm B lowers its prices from £10 to £5?

  Firm A's revenue increases to £6.3m
• What is the result of Firm A lowering its prices to £5 in retaliation?

  Both firms experience a revenue fall
• What is the Nash Equilibrium in this context?

  Both firms raise prices to £10 for profit
• What is the consequence of firms engaging in price fixing?

  Fines of 10% of annual turnover
• What are the reasons a firm might cheat on a price-fixing agreement?

  1. Existing firms act selfishly
  2. New entrants disrupt market rules
  3. Competition authorities enforce regulations
• How do Trade Unions impact wages in competitive markets?

  They negotiate higher than equilibrium wage rates
• What happens to employment when Trade Unions negotiate higher wages?

  Unemployment may increase due to higher costs