Chapter 9

Question 1

What act did the British Parliament authorize to help the East India Company?

Answer 1

Tea Act

Question 2

What was the major industry that nearly monopolized the US in 1860?

Answer 2

U.S. cotton industry

Question 3

What is a natural monopoly?

Answer 3

Large economies of scale

Question 4

Examples of natural monopolies?

Answer 4

Water and electric companies

Question 5

What shape does the demand curve appear for a perfectly competitive firm?

Answer 5

Flat

Question 6

What type of demand curve does a monopolist face?

Answer 6

Downward-sloping

Question 7

What is the shape of total revenue for a monopolist?

Answer 7

Hill

Question 8

What leads to the point where more sales bring in less revenue for a monopolist?

Answer 8

Price drop exceeds quantity gain

Question 9

What is marginal profit?

Answer 9

Marginal revenue - Marginal cost

Question 10

What is the first step a monopolist takes to determine the quantity of output?

Answer 10

Set MR = MC

Question 11

What is the main economic objection to monopolies?

Answer 11

Not enough output for efficiency

Question 12

What did the Southern states want to leverage?

Answer 12

Britain’s dependency on its cotton

Question 13

Why can natural monopolies arise in water and electricity?

Answer 13

Economies of scale

Question 14

What do regulated monopolies ensure?

Answer 14

Access to products/services

Question 15

What does a government do when faced with a natural monopoly?

Answer 15

Regulation OR ownership

Question 16

What is the monopolist seeking to maximize?

Answer 16

Profit

Question 17

What is the profit-maximizing condition for a monopoly?

Answer 17

MR = MC

Question 18

What is total profit?

Answer 18

Sum of marginal profits

Question 19

What indicates that the firm is earning positive profits?

Answer 19

Price above average cost

Question 20

What is a monopoly?

Answer 20

Firm controlling all supply of a good/service

Question 21

What controls a physical resource in a monopoly?

Answer 21

Scarce resource

Question 22

When MC > MR, what should the firm do?

Answer 22

Reduce output

Question 23

When is total profit maximized?

Answer 23

MR = MC

Question 24

When does a monopolist maximize profit?

Answer 24

Where MR = MC

Question 25

What did the act do regarding tea?

Answer 25

Taxed teas; East India Company monopoly

Question 26

What does monopoly refer to?

Answer 26

Single firm producing all output

Question 27

What does a patent grant an inventor?

Answer 27

Exclusive legal right

Question 28

What assures allocative efficiency?

Answer 28

If P > MC

Question 29

How long do exclusive patent rights last in the U.S.?

Answer 29

20 years

Question 30

Is predatory pricing legal in the U.S.?

Answer 30

No, it's a violation of antitrust law

Question 31

What does P > MC indicate?

Answer 31

Marginal benefit > Marginal cost

Question 32

What is a trademark?

Answer 32

Identifying symbol or name

Question 33

What is the impact of predatory pricing on new entrants?

Answer 33

Cannot make money

Question 34

What defines a monopoly in a single market?

Answer 34

No close substitutes

Question 35

How does monopoly affect consumers?

Answer 35

Higher price, lower quantity

Question 36

Can firms renew trademarks?

Answer 36

Yes, if in active use

Question 37

What is the challenge of launching a new national cola drink?

Answer 37

High promotional costs

Question 38

What deters competition in a monopoly?

Answer 38

Barriers to entry

Question 39

Can barriers to entry lead to monopolies?

Answer 39

Yes

Question 40

When does a natural monopoly occur?

Answer 40

Quantity demanded < minimum quantity

Question 41

What are economies of scale?

Answer 41

Cost advantages with scale

Question 42

What is a copyright?

Answer 42

Protection for original works

Question 43

What can a monopoly charge?

Answer 43

Any price subject to demand

Question 44

Can barriers to entry limit competition to a few firms?

Answer 44

Yes

Question 45

How long does copyright protection last?

Answer 45

Life of author + 70 years

Question 46

How is a monopoly often described in practice?

Answer 46

One firm with high market share

Question 47

What combines to limit competition in a natural monopoly?

Answer 47

Economies of scale and market size

Question 48

Example of a famous trade secret?

Answer 48

Coca-Cola formula

Question 49

Which company controls the majority of global diamond production?

Answer 49

DeBeers

Question 50

What is a company with control over a physical resource?

Answer 50

Natural monopoly