monopoly

Question 1

price maker

Answer 1

a firm that does not have to consider competitors when setting the prices of its products

Question 2

monopoly

Answer 2

a firm that is the sole seller of a product without close substitutes

Question 3

cause of monopoly

Answer 3

barriers to entry

Question 4

three main sources of barriers to entry

Answer 4

1. monopoly resources 2. government regulation 3. the production process

Question 5

monopoly resources

Answer 5

a single firm owns a key resource. uncommon because economies are large and resources are owned by many people.

Question 6

government created monopolies

Answer 6

patent and copyright laws, higher prices, higher profits

Question 7

natural monopolies

Answer 7

a market that runs most efficiently when one large firm supplies all of the output.

Question 8

average revenue

Answer 8

total revenue divided by the quantity sold. equals the price

Question 9

marginal revenue

Answer 9

less than its price because ,with a downward demand curve, to increase the amount sold, a monopoly must decrease the price (reducing marginal revenue(.

Question 10

the output effect

Answer 10

more output is sold, so Q is higher, which tends to increase total revenue.

Question 11

the price effect

Answer 11

lower price reduces revenue. Effects monopolies but not competitive markets.

Question 12

monopoly demand curve

Answer 12

demand curve is equal to the average revenue and price

Question 13

monopoly marginal revenue curve slope

Answer 13

MR slopes downhill faster than monopoly demand but starts at the same point

Question 14

marginal revenue is negative when…

Answer 14

the price effect on revenue is greater than the output effect.

Question 15

profit maximizing quantity (monopoly)

Answer 15

MR=MC

Question 16

price in monopoly

Answer 16

price is based on demand curve at profit maximizing quantity P> MR=MC

Question 17

monopoly profit

Answer 17

difference between the average total cost at the profit maximizing output and the price (P-ATC)*Q

Question 18

monopoly deadweight loss

Answer 18

the inefficiency that arises whenever a monopolist charges a price above marginal cost. monopolist produces less than the socially efficient quantity of output.

Question 19

when is a monopoly’s profit a social cost?

Answer 19

when inefficiency diminishes the total surplus. Increased producer surplus from profit can be okay as long as it isn’t connected to consumers buying fewer units.

Question 20

price discrimination

Answer 20

the business practice of selling the same good at different prices to different customers. Not possible in a competitive market.

Question 21

Price discrimination Lesson One

Answer 21

rational strategy for a profit maximizing monopolist

Question 22

Price Discrimination Lesson Two

Answer 22

market forces can prevent firms from price discriminating (arbitrage)

Question 23

arbitrage

Answer 23

the process of buying a currency low and selling it high

Question 24

Price discrimination Lesson Three

Answer 24

price discrimination can raise economic welfare. Increases the producer surplus without changing consumer surplus.

Question 25

perfect price discrimination

Answer 25

takes place when a monopolist charges each consumer his or her willingness to pay-the maximum that the consumer is willing to pay

Question 26

welfare with and without price discrimination

Answer 26

check graph

Question 27

imperfect price discrimination

Answer 27

can raise, lower, or maintain total surplus (unclear impact on welfare)

Question 28

antitrust laws

Answer 28

laws that prevent monopolies and promote competition and fairness. Must determine whether a merger reduces competition and welfare or increases synergies and welfare.

Question 29

Regulation of monopolies

Answer 29

set price equal to marginal cost or set price equal to average cost

Question 30

price=average cost monopoly

Answer 30

zero economic profit. leads to deadweight loss because price no longer reflects marginal cost. disincentives lowering price when possible

Question 31

price=marginal cost

Answer 31

because of declining marginal cost the monopoly would lose money and gov would need to subsidize with taxes. Lead to deadweight loss of tax.