Chapter 9 Flashcards
What act did the British Parliament authorize to help the East India Company?
Tea Act
What was the major industry that nearly monopolized the US in 1860?
U.S. cotton industry
What is a natural monopoly?
Large economies of scale
Examples of natural monopolies?
Water and electric companies
What shape does the demand curve appear for a perfectly competitive firm?
Flat
What type of demand curve does a monopolist face?
Downward-sloping
What is the shape of total revenue for a monopolist?
Hill
What leads to the point where more sales bring in less revenue for a monopolist?
Price drop exceeds quantity gain
What is marginal profit?
Marginal revenue - Marginal cost
What is the first step a monopolist takes to determine the quantity of output?
Set MR = MC
What is the main economic objection to monopolies?
Not enough output for efficiency
What did the Southern states want to leverage?
Britain’s dependency on its cotton
Why can natural monopolies arise in water and electricity?
Economies of scale
What do regulated monopolies ensure?
Access to products/services
What does a government do when faced with a natural monopoly?
Regulation OR ownership
What is the monopolist seeking to maximize?
Profit
What is the profit-maximizing condition for a monopoly?
MR = MC
What is total profit?
Sum of marginal profits
What indicates that the firm is earning positive profits?
Price above average cost
What is a monopoly?
Firm controlling all supply of a good/service
What controls a physical resource in a monopoly?
Scarce resource
When MC > MR, what should the firm do?
Reduce output
When is total profit maximized?
MR = MC
When does a monopolist maximize profit?
Where MR = MC
What did the act do regarding tea?
Taxed teas; East India Company monopoly
What does monopoly refer to?
Single firm producing all output
What does a patent grant an inventor?
Exclusive legal right
What assures allocative efficiency?
If P > MC
How long do exclusive patent rights last in the U.S.?
20 years
Is predatory pricing legal in the U.S.?
No, it’s a violation of antitrust law
What does P > MC indicate?
Marginal benefit > Marginal cost
What is a trademark?
Identifying symbol or name
What is the impact of predatory pricing on new entrants?
Cannot make money
What defines a monopoly in a single market?
No close substitutes
How does monopoly affect consumers?
Higher price, lower quantity
Can firms renew trademarks?
Yes, if in active use
What is the challenge of launching a new national cola drink?
High promotional costs
What deters competition in a monopoly?
Barriers to entry
Can barriers to entry lead to monopolies?
Yes
When does a natural monopoly occur?
Quantity demanded < minimum quantity
What are economies of scale?
Cost advantages with scale
What is a copyright?
Protection for original works
What can a monopoly charge?
Any price subject to demand
Can barriers to entry limit competition to a few firms?
Yes
How long does copyright protection last?
Life of author + 70 years
How is a monopoly often described in practice?
One firm with high market share
What combines to limit competition in a natural monopoly?
Economies of scale and market size
Example of a famous trade secret?
Coca-Cola formula
Which company controls the majority of global diamond production?
DeBeers
What is a company with control over a physical resource?
Natural monopoly
