Chapter 10 Flashcards
A monopoly exists when a single firm is the sole producer of a product for which there are no close ______.
Substitutes
True or false: Pepsi could be regarded as a monopolist depending on how we define the product.
True
True or false: Pepsi could be regarded as a monopolist depending on how we define the product.
True
In a very small remote town, there is only one grocery store which is considered to be a monopoly. For this to be true, what needs to be clearly defined?
The market
Which of the following exists when a single firm is the sole producer of a product for which there are no close substitutes?
Monopoly
Monopolies come into existence because of:
Barriers to entry
What kind of barrier to entry exists when a company is the sole owner of a particular technology?
a technical barrier
The DeBeers Diamond Company, which owns or runs the majority of the world’s diamond mines, has market power over the diamond trade. How was this market power obtained?
Control over a scarce resource.
True or false: Only very large companies can be monopolies.
False
What kind of barrier to entry exists when a company has a patent or copyright on their product?
A legal barrier
Which of the following is a good example of a monopoly?
a public utility
Extensive economies of scale tend to block the entry of new firms into an industry by reducing ______ which are difficult to match.
unit costs
What kind of barrier to entry exists when a company is the sole owner of a resource?
a technical barrier
Which of the following is a technical barrier to entry?
An aluminum company controls most of the world’s bauxite mines (a key input).
Computer operating software, commercial aircraft, and automobile manufacturing are examples of industries in which ______ limit the entry of new firms.
Economies of scale
______ create(s) legal barriers to entry.
Government
Which of the following are barriers to entry?
Control over a scarce resource.
Patents and copyrights.
Which of the following are legal barriers to entry?
Patents
License
Which of the following are reasons why a monopolist is considered a price maker?
The monopolist exerts control over the price.
The monopolist controls the total quantity supplied.
Economies of scale act as a barrier to the entry of new firms into an industry because ____.
they imply very extensive start-up costs which keeps out competition
If a monopolist determines the price then the market will decide the _____ and if the monopolist decide the quantity then the market will decide the _____.
quantity; price
What kind of barrier to entry exists when a company is the sole owner of a particular technology?
a technical barrier
In a monopoly, the demand curve for the firm is also the demand curve for the
Industry or market
Which of the following are examples of industries in which economies of scale block the entry of new firms?
Commercial aircraft
Gas & Electric Utilities
Steel
Unlike the competitive firm, the monopolist faces a downward sloping demand curve.
True
A monopolist is a price because it controls the total quantity produced and thus has control over the price.
Maker
For a monopolist, which of the following is the same as price?
Average revenue
For a monopolist, marginal is lower than because the lower price of an extra unit of output also applies to all prior units of output.
Blank 1: revenue
Blank 2: price or average revenue
What is the shape of the demand curve for a pure monopolist?
Downward sloping
To increase its sales, a monopolist must reduce the price on _____.
the whole of its output.
Computer operating software, commercial aircraft, and automobile manufacturing are examples of industries in which ______ limit the entry of new firms.
Economies of scale
When marginal revenue is negative, what is happening to total revenue?
It is diminishing.
Unlike a perfectly competitive firm who faces a ______ demand curve, the monopolist faces a ______ demand curve.
horizontal; downward-sloping
Average revenue is the same as the demand curve.
True
For a monopoly market, the marginal revenue curve is ____ times steeper than the demand curve.
2
Which of the following describes why marginal revenue is less than the price for a monopoly?
Because the lower price of the extra unit of output also applies to all prior units of output
If the demand curve crosses the horizontal axis at a value of 80 units, the marginal revenue curve will cross at ______ units.
40
When total revenue is maximized, what is the value of marginal revenue?
0
For a monopoly market, which curve is twice as steep at the demand curve?
marginal revenue
The monopolist wants a price-quantity combination to fall in the _____ section of its demand curve, where a lower price means _____ total revenue.
elastic; greater
In the short run, the cost structure for a monopolist is no different from that of _____.
a competitive producer
At whatever value the demand curve crosses the horizontal axis, the marginal revenue curve will cross at ______ value.
a half of that
What is the output called when total revenue equals total cost?
The break-even output
The profit-maximizing level of output can be determined by comparing _____.
total revenue and total cost at each possible level of production and choosing the output with the greatest possible difference
Where does a profit-maximizing monopolist operate?
Where demand is elastic.
Which of the following describes why marginal revenue is less than the price for a monopoly?
Because the lower price of the extra unit of output also applies to all prior units of output
Graphically, maximum profits are where the slope of the total revenue curve equals that of the total cost curve.
True
Profits for a monopolist are maximized when MR = ____.
MC
At output levels prior to MR=MC, marginal ______ is greater than marginal ______, and at output levels after MR=MC, marginal ______ is greater than marginal ______.
revenue; cost; cost; revenue
For a monopolist, what is the relationship between the price and the marginal revenue?
The price is always greater than the marginal revenue.
Graphically, profits are maximized when the slope of the total revenue curve is ____ the slope of the total cost cure.
the same as
A firm’s manager is given the following information: At an output of 4 units, the price is $80, marginal revenue is $40 and marginal cost is $30. At an output 5 units the price is $76, marginal revenue is $38 and marginal cost is $34. At an output of 6 units, the price is $72, marginal revenue is $36 and marginal costs is $38. What should the manager do?
Produce 5 units of output and charge $76.
Producing an output where the last unit’s marginal revenue is equal to its marginal cost will give the greatest profit because _____.
each unit of output after the MR = MC amount will earn less revenue that its costs.
each unit of output prior to the MR = MC rule earns more revenue for the firm than its costs.
A firm’s manager is given the following information: At an output of 4 units, the price is $132, marginal revenue is $102 and marginal cost is $60. At an output 5 units the price is$122, marginal revenue is $82 and marginal cost is $70. At an output of 6 units, the price is $112, marginal revenue is $62 and marginal costs is $80. What should the manager do?
Produce 5 units of output and charge $122.
Because of the lack of competition, when may a monopolist make profits?
In both the short and long run.
A monopolist does not achieve productive efficiency because it produces a level of output that does not correspond to the minimum point of which curve?
Average Total Cost
At a monopolist’s profit-maximizing output, its
——— exceeds marginal cost, resulting in allocative inefficiency.
Price
What is it called when producers charge different customers different prices for the same good or service?
Price discrimination
For a monopolist to be able to price discriminate, what must it have control over?
Price
Why can a monopolist make profits in the long-run but a perfectly competitive firm can not?
A monopolist is protected by barriers to entry.
The monopolist is not productively efficient because it does not produce at an output where the ______ is at its minimum point.
ATC
The price-discriminating monopolist charges a higher price to customers who have ______ elastic demand and a lower price to customers who have ______ elastic demand.
less; more
Diminishing marginal utility leads to what kind of price discrimination?
Discrimination among units purchased.
For a monopolist to be able to practice price discrimination, it must have what kind of power?
Market
Which of the following is an example of price discrimination among units purchased?
A local shoe store promotes “buy one pair of shoes and get one free”.
Why does price discrimination among buyer groups arise?
People have different elasticities of demand.
A monopolist does not achieve productive efficiency because it produces a level of output that does not correspond to the minimum point of which curve?
Average Total Cost
There are three conditions necessary for price discrimination.
True
What is necessary for price discrimination among units purchased to be effective?
That people experience decreasing marginal utility.
_____ price discrimination is a situation where every individual customer is charged the highest price they are willing to pay for each unit of a product bought.
Perfect
Which of the following are conditions necessary for price discrimination to be effective?
Control over the price
Groups of buyers having different price elasticities
No resale
Which of the following examples comes closest to being perfect price discrimination?
Cell phone companies offer a wide variety of different options so customers get a more tailor made package.
The price-discriminating monopolist charges a higher price to customers who have ______ elastic demand and a lower price to customers who have ______ elastic demand.
Less, more
Which of the following is a result of price discrimination?
Higher firm profits
Which of the following examples comes closest to being perfect price discrimination?
An airline company has 20 different ticket prices depending on when the ticket was purchased, how long the trip is etc..
Which of the following are valid criticisms of monopolies?
They are able to make economic profits indefinitely.
They are allocatively and productively inefficient.
They create a more unequal distribution of income and wealth.
A competitive market equilibrium occurs at an output where _____.
marginal cost = demand
Which of the following will achieve maximum profit for the monopolist?
The output where marginal cost equals marginal revenue.
An example of price discrimination is airlines charging higher fares to business travelers whose demand for travel is price and lower more restricted fares to attract vacationers and others with price demand.
Blank 1: inelastic
Blank 2: elastic
Compared to a monopolist, a perfectly competitive firm will charge a ______ price and supply a ______ quantity.
lower; higher
Which of the following are not valid criticisms of monopolies?
They are unable to make economic profits.
They are allocatively and productively efficient.
What is found by setting marginal cost equal to the demand curve?
The competitive market equilibrium.
What quantity will a monopolist operate at?
Where MR = MC and charging a price corresponding to demand at that level
Compared to a perfectly competitive firm, a monopolist finds it profitable to charge a ______ price and supply a ______ quantity.
higher; lower
