Monopoly

Question 1

Unlike other firms, a monopolist’s demand curve is _____________________ market demand curve.

Answer 1

Unlike other firms, a monopolist’s demand curve is the same as the market demand curve.

Question 2

A monopoly is characterized by all of the following except:

• there are no close substitutes to the firm’s product.
• there are only a few sellers each selling a unique product.
• the firm has market power.
• entry barriers are high.

Answer 2

there are only a few sellers each selling a unique product.

Question 3

A monopolist faces a_______________ demand curve.

Answer 3

downward-sloping

Question 4

A public franchise is a government designation that a private firm is the only ____________________.

Answer 4

legal producer of a good or service

Question 5

Governments grant patents to compensate firms for _____________costs.

Answer 5

research and development

Question 6

The De Beers Company, one of the longest-lived monopolies, is facing increasing competition. One source of competition comes from people who might resell their previously owned diamonds. Why is De Beers worried that people might resell their previously owned diamonds? because previously owned diamonds would be a_______________ to newly mined diamonds and therefore reduce De Beers’ market power

Answer 6

close substitute

Question 7

A natural monopoly is most likely to occur in an industry where ____________ are very large relative to _____________..

Answer 7

where fixed costs are very large relative to variable costs

Question 8

If a monopolist’s marginal revenue is $25 a unit and its marginal cost is $25, then to maximize profit the firm should ________________

Answer 8

continue to produce the output it is producing.

Question 9

A price maker is a firm that has________________.

Answer 9

some control over the price of the product it sells.

Question 10

Figure 15-6 shows the cost and demand curves for a monopolist. The monopolist earns a profit of

Answer 10

$248.

Question 11

Figure 15-6 shows the cost and demand curves for a monopolist.

Refer to Figure 15-6. The profit-maximizing output and price for the monopolist are

Answer 11

output = 62; price = $24.

Question 12

To maximize profit a monopolist will produce where

Answer 12

marginal revenue is equal to marginal cost.

Question 13

Economic efficiency in a free market occurs when the sum of consumer surplus and producer surplus is _________.

Answer 13

maximized.

Question 14

Compared to ____________________, the consumer surplus in a monopoly is lower because price is higher and output is lower.

Answer 14

perfect competition

Question 15

Market power refers to

Answer 15

the ability of a firm to charge a price higher than the marginal cost of production.

Question 16

The size of a deadweight loss in a market is reduced by market price being close to _____________

Answer 16

marginal cost.

Question 17

Assume a hypothetical case where an industry begins as perfectly competitive and then becomes a monopoly. Under perfectly competitive conditions, economic surplus is maximized. Under monopoly conditions economic surplus is less than under perfect competition and there is a ________________.

Answer 17

deadweight loss.

Question 18

The most profitable price for a monopolist is the price for which marginal revenue equals ______________

Answer 18

marginal cost.

Question 19

The first important federal law passed to regulate monopolies in the United States was the

Answer 19

Sherman Act.

Question 20

In the United States, government policies with respect to monopolies and collusion are embodied in _______________.

Answer 20

antitrust laws.

Question 21

A vertical merger is

Answer 21

A merger between firms at different stages of production of a good