Chapter 11 Flashcards
Which of the following exists when a single firm is the sole producer of a product for which there are no close substitutes?
pure monopoly
pure monopoly exists when a single firm is the sole producer of a product for which there are no close substitutes
Which of the following are the main characteristics of a pure monopoly?
* Unavailability of close substitutes for its products
* Presence of at least two sellers
* Availability of multiple substitutes of its products
* Ease of entry for other firms
* Blocked entry for other firms
* Control over the price
* Presence of a single seller
- Unavailability of close substitutes for its products
- Blocked entry for other firms
- Control over the price
- Presence of a single seller
pure monopoly: a market structure in which one firm sells a unique product, into which entry is blocked, in which the single firm has considerable control over product price, and in which nonprice competition may or may not be found.
The firm and ____ are synonymous in pure monopoly.
the industry
Which characteristic of pure monopoly requires a consumer to buy the monopolized product or do without it entirely?
no close substitutes
Which of the following are characteristics of public utilities?
* government owned or regulated
* low barriers to entry
* monopolies or near monopolies
* government has little control over price
- government owned or regulated
- monopolies or near monopolies
How do economies of scale affect long-run average total costs for a firm?
* Long-run average total costs rise over a wide range of output.
* Long-run average total costs decline over a wide range of output.
* Long-run average total costs remain the same over a wide range of output.
* Not enough information is provided to determine the answer.
- Long-run average total costs decline over a wide range of output.
Modern technology can be a cause of extensive ____.
economies of scale
Economies of scale refer to ____ average total costs with added firm size.
declining
____ utilities are government owned or regulated.
public
How do network effects create barriers to entry in the social media industry?
They discourage people from using lesser-known networks.
The strongest barriers to entry effectively block all ____.
potential competition
Government creates ____ barriers to entry.
legal
What are the two legal barriers to entry created by the government?
licenses and patents
A ____ is the exclusive right of an inventor to use, or allow another to use, her or his invention.
patent
Why does an inventor need to have her or his invention protected from rivals?
Rivals will use the invention without having shared in the effort and expense of developing it.
The presence of network effects can predispose an industry toward which of the following?
* price-setting
* diversification
* monopoly
* competition
- monopoly
It is difficult to start up a major league sports team because existing professional teams have contracts with the best players and long-term leases on stadiums. Which barrier to entry does this illustrate?
control of a key resource
Slashing prices is an example of an entry barrier created by a(n) ____.
monopolist
Patents, economies of scale, and resource ownership are all assumptions of the pure ____ model.
monopoly
Marginal revenue is less than price at every unit of output because the monopolist
* could have sold these prior units at a price equal to marginal cost
* could have sold these prior units at a price higher than demand
* could have sold these prior units at a higher price if it had not produced and sold the extra output.
* could have sold these prior units at a lower price if it had not produced and sold the extra output.
- could have sold these prior units at a higher price if it had not produced and sold the extra output.
Marginal revenue is the change in ____ revenue associated with a single-unit change in output.
total
____ of essential property is a barrier to entry into an industry.
control
Firms with downward-sloping product demand curves are called price ____.
maker
Which of the following are entry barriers created by monopolists? (More than one answer may be correct.)
* price reductions
* increased advertising
* imposition of tariffs and quotas
* collaboration with government
- price reductions
- increased advertising
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
Which of the following are assumptions made in the model of pure monopoly?
* Patents, economies of scale, and resource ownership secure the firm’s monopoly.
* No unit of government regulates the firm.
* The firm is a multi-price monopolist and charges different prices for all units of output.
* The firm is a single-price monopolist and charges the same price for all units of output.
* The government regulates the firm.
- Patents, economies of scale, and resource ownership secure the firm’s monopoly.
- No unit of government regulates the firm.
- The firm is a single-price monopolist and charges the same price for all units of output.
True or false: A firm is producing 24 units of output. At the 24th unit of output, marginal revenue is $5, and marginal cost is $4; at the 25th unit of output, marginal revenue is $4.50, and marginal cost is $4.50; at the 26th unit of output, marginal revenue is $4, and marginal cost is $5. This firm made the correct choice by producing only 24 units of output and then stopping.
false
A monopolist does not have a supply curve because:
* it does not equate marginal revenue with marginal cost
* it does not equate price with marginal cost
* it does not produce at the minimum average total cost
* there is no single, unique price associated with each level of output
- it does not equate price with marginal cost
- there is no single, unique price associated with each level of output
Price makers are firms with ____ demand curves.
downward-sloping
they control output; therefore, they can “make the price”
Why might a monopolist accept a less-than-maximum per-unit profit?
Additional sales more than compensate for the lower profit per unit.
A(n) ____ is able to maintain an economic profit in the long run because there are no new entrants to increase supply, drive down price, and eliminate economic profit.
monopoly
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
What is the term used to refer to charging different prices to different buyers of a specific product?
price discrimination
The monopolist seeks maximum ____ profit, not maximum unit profit.
total
Which of the following explains why a pure monopolist is able to maintain an economic profit in the long run?
* There are no new entrants to increase supply, drive up price, and eliminate profit.
* There are no new entrants to increase supply, drive down price, and eliminate profit.
* There are no new entrants to decrease supply, drive up price, and eliminate profit.
* There are no new entrants to decrease supply, drive down price, and eliminate profit.
- There are no new entrants to increase supply, drive down price, and eliminate profit.
With a natural monopoly the demand curve intersects the long-run average total cost curve where the long-run average total cost curve is still ____.
falling
If the objective of government is to achieve ____ efficiency, it should establish a legal price for the monopolist that is equal to its marginal cost.
allocative
As an example of price discrimination, airlines charge higher fares to business travelers whose demand for travel is ____ and offer lower, more restricted fares to vacationers and others with more ____ demand.
inelastic; elastic
Which of the following are potential solutions to the economic losses incurred by a regulated monopoly caused by socially optimal pricing?
* tariffs
* public subsidies
* production quotas
* price discrimination
- public subsidies
- price discrimination
A regulated monopoly is likely to suffer losses when ____.
- price is set to marginal cost (P = MC)
- price is set to achieve the most efficient allocation of resources
The demand curve intersects the natural monopolist’s long-run average total cost curve at a point where long-run average total costs are still falling, due to ____.
economies of scale
