06 Monopoly

Question 1

Imperfectly competitive firms..

Answer 1

Have some ability to set their own price: they are price setters

Question 2

Monopoly

Answer 2

Has only one seller with no close substitutes

Question 3

Monopolistic competition

Answer 3

Has many firms producing slightly differentiated products that are reasonably close substitutes

Question 4

Oligopoly

Answer 4

Has a small number of large firms producing products that are close substitutes

Question 5

Characteristics of a Monopoly

Answer 5

One firm, complete flexibility on price, difficult or impossible entry/exit, unique product, possible economic profits, make decisions on P & Q

Question 6

Market power

Answer 6

A firm’s ability to raise its price without losing all its sales, comes from factors that limit competition

Question 7

Imperfectly Competitive Firm Curve?

Answer 7

Downward sloping demand curve, picks P and Q on the demand curve

Question 8

Perfectly Competitive Firm Curve?

Answer 8

Horizontal demand curve, picks only Q on the demand curve

Question 9

Source of Market Power 1 (excl..)

Answer 9

Exclusive control over inputs

Question 10

Source of Market Power 2 (pat..)

Answer 10

Patents and copyrights (patent gives owner right to exclude other from using invention for 20 years, copyright grants creator of original work exclusive rights to determine whether it may be used by others for author’s lifetime plus 50-70 years)

Question 11

Source of Market Power 3 (govt…)

Answer 11

Government Licences

Question 12

Source of Market Power 4 (econ..)

Answer 12

Economies of Scale

Question 13

Source of Market Power 5 (net..)

Answer 13

Network economies (occurs when the value of product increases as number of users increases)

Question 14

Total cost increases..

Answer 14

As output increases

Question 15

Average total cost decreases…

Answer 15

As output increases

Question 16

Marginal revenue

Answer 16

Change in total revenue from a one-unit change in output (less than price)

Question 17

Marginal revenue on graph

Answer 17

Same intercept as straight line demand curve
Twice the steepness
Below demand curve

Question 18

Profit is maximised..

Answer 18

At level of output where marginal cost equals marginal revenue

Question 19

If P > ATC

Answer 19

Firm earns profit

Question 20

If P < ATC

Answer 20

Firm suffers loss

Question 21

Natural Monopoly

Answer 21

Monopoly that arises from economies of scale (as output falls, average cost will rise)

Question 22

Perfect price discrimination

Answer 22

Practice of charging each buyer exactly his or her reservation price.

Question 23

Price discrimination

Answer 23

Brings the level of output closer to the socially optimal quantity.

Question 24

Network economies

Answer 24

Exist when the value a consumer places on a good increases when other consumers have the same or compatible goods.

Question 25

Cost-plus regulation

Answer 25

A method of regulation under which the regulated firm is permitted to charge prices that cover the explicit cost of production plus a markup to cover the opportunity cost of the resources supplied by the firm’s owners.