Monopoly Quiz review (A32-A39)

Question 1

Equation to find TR (Total Revenue)

Answer 1

P x Q (price x quantity); OR Current TR - Previous TR

Question 2

Equation for MR (Marginal Revenue)

Answer 2

Change in TR/Change in Quantity

Question 3

Firms will only produce…

Answer 3

in the elastic portion of the demand curve where marginal revenue is positive

Question 4

Why does MR fall faster than DARP in imperfect competition?

Answer 4

because they must reduce prices for all sales in order to increase the quantity sold

Question 5

What is P in relation to MC in imperfect competition? (greater than, less than, equal to?)

Answer 5

P > MC (so imperfect competition is allocatively inefficient)

Question 6

What is P in relation to MR in imperfect competition? (greater than, less than, equal to?)

Answer 6

P > MR

Question 7

Marginal revenue (MR) is positive where the demand curve is…

Answer 7

elastic. (Left half of curve).

Question 8

Where do you draw the MR curve on the X axis (in a monopoly graph?)

Answer 8

From the demand curve to the midpoint of the x axis

Question 9

Monopolies will never operate on the _____ portion of the demand curve

Answer 9

inelastic (it always HAS to be elastic…like a rubber band or something)

Question 10

If the curve is inelastic, how does a monopoly get the curve to become elastic?

Answer 10

They will keep reducing output. This is where MR is positive (MR > 0)

Question 11

Total Revenue is at its maximum where…

Answer 11

MR = 0

Question 12

In the short run, the shapes of the ATC and MC result from…

Answer 12

diminishing marginal productivity of their resources

Question 13

In the long run, the shape of the ATC results from…

Answer 13

economies and diseconomies of scale

Question 14

Equation to find Average Revenue (AR) =

Answer 14

Total Revenue / Quantity

Question 15

The most profitable output (quantity) is where…

Answer 15

MC = MR. (think: Where MR = MC, produces most profit see…) This is the same for monopolies AND regular producers

Question 16

Monopolists will charge the demand curve price at…

Answer 16

the quantity above where MC = MR (think: see price above at demand, quantity right down again)

Question 17

How to calculate economic profit or loss for one unit

Answer 17

P - ATC`

Question 18

How to calculate TOTAL economic profit or loss

Answer 18

(P - ATC) x Quantity

Question 19

Why are monopolies allocatively inefficient?

Answer 19

They are producing less and charging more than MC (they also charge more than MR)

Question 20

Where do you shade a profit or a loss?

Answer 20

Shade the rectangle between price and ATC

Question 21

Where do you shade total costs?

Answer 21

Shade the rectangle in between ATC and the X axis

Question 22

Where do you shade fixed costs?

Answer 22

Shade the rectangle between ATC and AVC

Question 23

Where do you shade Consumer Surplus (for imperfect comp.)?

Answer 23

Area between price and demand curve (consumer surplus should be lower for imperfect comp.)

Question 24

Where do you shade Producer Surplus (for imperfect comp.)?

Answer 24

Area between price and supply curve (should be greater for imperfect comp)

Question 25

Where do you shade Deadweight Loss?

Answer 25

Triangle formed by the supply curve, demand curve, and the quantity

Question 26

Deadweight loss occurs where P is in what relation to MC?

Answer 26

When P > MC

Question 27

What are the distinguishing characteristics of a Monopoly? (hint: there are 6)

Answer 27

Single producer; No close substitutes; Barriers to entry; Economies of Scale; Control of Key Resources; Market Power

Question 28

Single producer

Answer 28

only one supplier in the industry

Question 29

No close substitutes

Answer 29

Consumers cannot find similar products in other markets

Question 30

Barriers to entry

Answer 30

Something prevents rival firms from entering the market. This reduces competition and makes long-term economic profits or losses possible.

Question 31

Legal Barriers

Answer 31

government gives a single firm the exclusive right to produce a good. (ex: public franchise, patents, trademarks, copyrights, etc.)

Question 32

Economies of Scale

Answer 32

A natural monopoly exists where ATC continually declines at least to the quantity demanded by the market. Allows at most one firm to exist in the market.

Question 33

Control of Key Resources

Answer 33

Least important factor, but if a firm controlled most of the available resources, then it’s difficult for competitors to enter the market

Question 34

A monopolist is a price ______-

Answer 34

seeker. It controls the output to maintain the price it wants.

Question 35

To find the portion of consumer surplus that is transferred to the imperfect competitor…

Answer 35

area of transferred surplus / total consumer surplus in perfect comp.

Question 36

The monopolist’s demand curve is…

Answer 36

downward sloping, and price is higher than marginal cost and marginal revenue

Question 37

Monopolies are…

Answer 37

productively inefficient AND allocatively inefficient

Question 38

Refer to page 19 in the study guide packet for some cool graphs

Answer 38

Did ya do it? It also has steps for graphing a monopoly!

Question 39

Price discrimination (definition)

Answer 39

is selling the same good at different prices to different consumers

Question 40

What are the 3 conditions of price discrimination?

Answer 40

1. Identify and separate groups of consumers by their willingness to pay 2. Cannot be resold 3. Inelastic demand

Question 41

Positives of Price Discrimination

Answer 41

raises economic welfare by producing a greater quantity (same amount as perf. comp); Allocatively efficient

Question 42

Negatives of Price Discrimination

Answer 42

consumer surplus decreases as profits increase (maybe even zero consumer surplus

Question 43

Unregulated monopolies

Answer 43

where Price is above MC = MR

Question 44

Fair Return Price (price = ATC)

Answer 44

output is higher and price is lower than unregulated; firm is not operating @ its most efficient output; no gov’ subsidy

Question 45

Socially optimal price (price = MC)

Answer 45

allocatively efficient (equilibrium); gov’ must subsidize if the price is below ATC

Question 46

Price regulation is positive from a social point of view because:

Answer 46

it reduces price, increases output, and reduces the economic profits of monopolies

Question 47

Look on page 22 of study guide for a graph of the different types of monopolies!

Answer 47

srsly go look