Economics Chapter 9-11

Question 1

Monopoly

Answer 1

one firm produces all of the output in a market

Question 2

Barriers to entry

Answer 2

The legal, technological, or market forces that discourage or prevent potential competitors from entering a market.

Question 3

Natural monopoly

Answer 3

where the barriers to entry are something other than
legal prohibition.

Question 4

Legal monopoly

Answer 4

laws prohibit (or severely limit) competition. The government creates barriers to entry by prohibiting or limiting
competition.

Question 5

Natural Monopolies can arise from

Answer 5

in industries where the marginal cost of adding an additional customer is very
low, once the fixed costs of the overall system are in place.

in smaller local markets for products that are difficult to transport.

when a company has control of a scarce physical resource.

Question 6

Patent

Answer 6

gives the inventor the exclusive legal right to make, use, or sell the
invention for a limited time.

Question 7

Trademark

Answer 7

an identifying symbol or name for a particular good.

Question 8

Copyright

Answer 8

a form of legal protection to prevent copying, for commercial
purposes, original works of authorship, including books and music.

Question 9

Intellectual property

Answer 9

the body of law including patents, trademarks,
copyrights, and trade secret law that protect the right of inventors to
produce and sell their inventions.

Implies ownership over an idea, concept, or image, not a physical piece of
property.

Question 10

Deregulation

Answer 10

removing government controls over setting prices and
quantities in certain industries.

Question 11

Predatory pricing

Answer 11

a firm uses the threat of sharp price cuts to
discourage competition. (can be violation of antitrust laws)

Question 12

A monopolist can charge any price for its product, but the _____
for the firm’s product constrains the price.

Answer 12

demand

Question 13

Because the monopolist is the only firm in the market, its demand
curve is the same as the

Answer 13

market demand curve.

Question 14

Perfect competition vs Monopoly graphs

Answer 14

a perfectly competitive firm’s demand curve is flat.
A monopolist’s demand curve is the same as the market demand curve, which for most goods is downward-sloping.

Question 15

Total costs rise as

Answer 15

output increases.

Question 16

The highest profit will occur at the quantity where total revenue is

Answer 16

the farthest above total cost.

Question 17

Marginal profit

Answer 17

profit of one more unit of output, computed as marginal
revenue minus marginal cost.

Question 18

The profit-maximizing choice for the monopoly will be to produce at the quantity where

Answer 18

MR = MC.

Question 19

Allocative efficiency

Answer 19

producing the optimal quantity of some
output; the quantity where the marginal benefit to society of one
more unit just equals the marginal cost.

Question 20

Imperfectly competitive

Answer 20

firms and organizations that fall between
the extremes of monopoly and perfect competition.

Question 21

Monopolistic competition

Answer 21

many firms competing to sell similar but
differentiated products.

Question 22

Oligopoly

Answer 22

when a few large firms have all or most of the sales in an
industry.

Question 23

Differentiated product

Answer 23

a product that consumers perceive as
distinctive in some way.

Question 24

Perfect competition vs. Monopoly

Answer 24

PC: Perfectly elastic, It can sell all the output it wishes at the prevailing market price.
M: Demand curve is the market demand, It can sell more output only by decreasing the price it charges.

The demand curve faced by a monopolistically competitive
firm falls in between.

Question 25

The monopolistically competitive firm decides on its
profit-maximizing quantity and price in much the same way as

Answer 25

a monopolist

Question 26

Oligopoly (2)

Answer 26

when a small number of large firms have all or most of
the sales in an industry.

Question 27

Collusion

Answer 27

when firms act together to reduce output and keep prices
high.

Question 28

Cartel

Answer 28

a group of firms that have a formal agreement to collude to
produce the monopoly output and sell at the monopoly price.

Question 29

Game theory

Answer 29

a branch of mathematics that analyzes situations in
which players must make decisions and then receive payoffs based on
what other players decide to do.

Question 30

Prisoner’s dilemma

Answer 30

a scenario in which the gains from cooperation
are larger than the rewards from pursuing self-interest.

Question 31

Look at graphs about prisoner dilemma

Answer 31

okay

Question 32

Duopoly

Answer 32

an oligopoly with only two firms.

Question 33

Kinked demand curve

Answer 33

a perceived demand curve that arises when
competing oligopoly firms commit to match price cuts, but not price
increases

Question 34

Merger

Answer 34

when two formerly separate firms combine to become a
single firm.

Question 35

Acquisition

Answer 35

when one firm purchases another.

Question 36

Antitrust laws

Answer 36

laws that give government the power to block certain
mergers, and even in some cases to break up large firms into smaller
ones.

Question 37

(Four-Firm) Concentration ratio

Answer 37

an earlier tool which measures
what share of the total sales in the industry are accounted for by the
largest firms, typically the top four to eight firms.

Question 38

Market share

Answer 38

each firm’s proportion of total sales in that market.

Question 39

The Herfindahl-Hirshman Index (HHI)

Answer 39

approach to measuring
market concentration by adding the square of the market share of
each firm in the industry.

Question 40

Under U.S. antitrust laws, monopoly itself is not illegal, but

Answer 40

U.S. antitrust laws include rules against some restrictive
practices.

Question 41

Restrictive practices

Answer 41

practices that do not involve outright
agreements to raise prices or to reduce the quantity produced, but
that might have the effect of reducing competition. (ex. tying sales, bundling)

Question 42

Tying sales

Answer 42

a situation where a customer is allowed to buy one product
only if the customer also buys another product.

Question 43

Bundling

Answer 43

a situation in which multiple products are sold as one.

Question 44

Cost-plus regulation

Answer 44

when regulators permit a regulated firm to
cover its costs and to make a normal level of profit.

Question 45

Price cap regulation

Answer 45

when the regulator sets a price that a firm
cannot exceed over the next few years.

Question 46

Law in 1980

Answer 46

Sherman Antitrust Act of 1890