modul 15 Flashcards
What are the characteristics of a monopoly?
A monopoly is a market structure characterized by a single seller, no close substitutes for the product, and significant barriers to entry.
What is the relationship between price setting and monopoly power?
Monopoly power allows for price setting
What is a monopoly?
A market with only one seller
What is a natural monopoly?
A monopoly that occurs naturally without any government intervention
What is the difference between a monopoly firm and a perfectly competitive firm in terms of analyzing choices?
A monopoly firm has market power and faces a downward-sloping demand curve, while a perfectly competitive firm faces a horizontal demand curve.
How does demand relate to marginal revenue for a monopoly firm?
Marginal revenue is less than the price for a monopoly firm due to the downward-sloping demand curve.
What is the relationship between demand and marginal revenue for a monopoly firm?
For a monopoly firm, marginal revenue is always less than the price because the firm must lower the price to sell additional units.
How does a monopoly firm maximize profit using the marginal decision rule?
A monopoly firm maximizes profit by producing at the quantity where marginal revenue equals marginal cost.
Why does a monopoly firm always select a price in the elastic region of its demand curve?
To maximize total revenue
How does a monopoly firm’s output and price differ from a perfectly competitive firm?
A monopoly firm sets its output by setting marginal cost equal to marginal revenue and charges a price determined by the demand curve, which exceeds marginal cost. In perfect competition, price and marginal cost are equal.
De Beers acquired rights to nearly all the world’s diamond production, giving it enormous power in the market for diamonds. With new diamond supplies in Canada, Australia, and Russia being developed and sold independently of DeBeers, however, this power has ______.
declined
What is the relationship between price setting and monopoly power?
Monopoly power allows for price setting
What are some sources of monopoly power?
Special advantages of location
What is a source of monopoly power?
Exclusive franchise
How does a monopoly firm behave compared to firms in perfect competition?
Produces less and charges more
What is meant by a natural monopoly?
A natural monopoly is a type of monopoly that arises due to economies of scale, where a single firm can produce at a lower cost than multiple firms in the industry.
Monopoly is at the opposite end of the spectrum of market models from __ competition.
perfect
How do firms in a monopoly behave compared to firms in perfect competition?
Firms in a monopoly have the ability to restrict output and charge higher prices, unlike firms in perfect competition that are price takers and have no control over the market price.
What is a natural monopoly?
A monopoly that occurs naturally without any government intervention
A natural monopoly occurs when a single firm can produce a good or service at a ______ cost than multiple firms.
lower
How does price setting relate to monopoly power?
In a monopoly, the firm has the power to set the price of its product, as there are no competitors to dictate the market price.
__ are characteristics of a particular market that block new firms from entering it.
Barriers to entry
What are the sources of monopoly power?
The sources of monopoly power include barriers to entry, economies of scale, control over essential resources, locational advantages, and government restrictions.
A monopoly firm will generally operate where marginal revenue is ______.
positive
In a perfectly competitive market, each firm faces a ______ demand curve defined by the market price.
horizontal
The additional revenue a monopoly firm gains from selling an additional unit—its marginal revenue—is equal to the ______.
marginal price
A monopoly firm faces a ______ market demand curve.
downwardsloping
How does demand relate to marginal revenue for a monopoly firm?
Marginal revenue is less than the price for a monopoly firm due to the downward-sloping demand curve.
What is the relationship between marginal revenue and elasticity along a linear demand curve?
Marginal revenue is zero at the midpoint of a linear demand curve
How does marginal revenue relate to elasticity along a linear demand curve?
Marginal revenue is equal to price when demand is unit elastic along a linear demand curve.
The relationship between marginal revenue and elasticity along a linear demand curve is ______.
negative
What is the relationship between demand and marginal revenue for a monopoly firm?
For a monopoly firm, marginal revenue is always less than the price because the firm must lower the price to sell additional units.
How does a monopoly firm maximize profit using the marginal decision rule?
A monopoly firm maximizes profit by producing at the quantity where marginal revenue equals marginal cost.
Why does a monopoly firm always select a price in the elastic region of its demand curve?
To maximize total revenue
What is the relationship between price and marginal revenue for a firm facing a downward-sloping demand curve?
Price is less than marginal revenue
How does a monopoly firm’s output and price differ from a perfectly competitive firm?
A monopoly firm sets its output by setting marginal cost equal to marginal revenue and charges a price determined by the demand curve, which exceeds marginal cost. In perfect competition, price and marginal cost are equal.
What is one potential effect of a monopoly on consumer choices?
Decreased variety and options for consumers
How do monopolies differ from perfect competition in terms of output and price?
Monopolies produce less output and charge higher prices compared to perfect competition.
What is the difference between a monopoly and a perfectly competitive firm in terms of output and price?
Monopoly produces lower output and higher price
Why do monopolists have the means and incentive to protect and extend their position?
Because they can spend their economic profits to influence political leaders and public authorities
What is the term used to describe the output produced by a monopoly firm that is less than the efficient level?
Underproduction
What is consumer surplus?
The difference between what consumers are willing to pay and what they actually pay
What is the effect of a monopoly firm charging higher prices compared to a perfectly competitive firm?
Decreased consumer surplus
What are some public policy responses to monopoly?
Public policy responses to monopoly can include regulation, antitrust laws, and promoting competition through market reforms.
Compared to a perfectly competitive firm, a monopoly charges:
Higher prices
A monopoly firm is a ______ setter.
price
What are some potential effects of a monopoly on consumer choices, price, quality of products, and technological innovations?
Decreased consumer choices and higher prices
What is the main concern with the transfer of consumer surplus to a monopolist?
It reduces efficiency
What is the potential gain from moving from a monopoly solution to a competitive solution?
The shaded area GRC
What is the difference between consumer surplus in a perfectly competitive firm and a monopoly?
Consumer surplus is higher in a perfectly competitive firm
What are the implications of the higher price charged by a monopoly firm?
The higher price charged by a monopoly firm may allow it a profit at the expense of consumers, reducing their options and giving them little say in the matter.
What is the result of a monopoly firm producing an output that is less than the efficient level?
Decreased deadweight loss
What is the potential effect of a monopoly on consumer choices?
Limited consumer choices
What is the transfer of consumer surplus to a monopolist through higher prices called?
Producer surplus
The monopolist restricts output to ______ and raises the price to Pm.
Qm
The monopoly solution raises problems of efficiency, equity, and the concentration of _
power
What is the impact of a monopoly on consumer choices?
Decreased consumer choices
What are the problems associated with the monopoly solution?
Efficiency, equity, and concentration of power
What are potential effects of a monopoly on consumer choices, price, quality of products, and technological innovations?
Decreased consumer choices and higher prices
What is the main difference between price and marginal cost in a monopoly?
Price is greater than marginal cost
The total cost of increasing output from Qm to Qc is the area under the ______ cost curve over that range.
marginal
What is the main difference between a perfectly competitive firm and a monopoly firm?
Perfectly competitive firms have a large number of buyers and one seller, while monopoly firms have a large number of sellers and buyers producing a homogeneous good or service
A monopoly can result in fewer choices, higher costs, and lower ______.
quality
What is the public policy response to monopoly?
Regulating the production and pricing choices of monopolies
