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quiz 4 > pure monopoly > Flashcards

pure monopoly Flashcards

1
Q

An industry in which there is only one producer

A

A Monopoly

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2
Q

A monopoly is an industry in which there is only one producer, thus there is no ___.

A

Competition

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3
Q

A monopolist has significant market power; it can dictate the ____.

A

Price

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4
Q

A monopolistic does not have to continuously modify its product since there is no ____.

A

Competition

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5
Q

____ exists when a single firm is the sole producer of a product for which there are no close substitutes and barriers to entry exist

A

A Monopoly

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6
Q

The characteristics of a monopoly

A
  • single seller
  • no close substitutes for a product
  • price maker
  • may or may not advertise
  • barriers to entry
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7
Q

There has to be a total barrier to entry. If not, a new firm will enter and end the ____

A

monopoly

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8
Q

There is not competitive pressure. A monopolist will charge a higher price and produce a smaller quantity and will not experience a ____ ____.

A

Profit Squeeze

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9
Q

A monopolist need not increase quantity even if consumer demand increases

A

–

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10
Q 
Comparing
Competitive
-high profits attract more suppliers
-supply shifts right and price falls
-economic profits go to zero
-P = MC
-profits are squeezed, so there is great pressure to reduce costs and improve quality
A

compare
Monopoly
-high profits, but barriers to entry exclude new suppliers
-no production change, so price does not fall
-economic profits do not change
-P > MC
-no profit squeeze, so no pressure to reduce costs or improve quality.

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11
Q

The ability to alter the market price of a good or service

A

Market Power

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12
Q

____ firm has total market power and confronts the downward-sloping market demand curve for its own output

A

a monopoly

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13
Q

Pros of market power

  • greater ability to purse research and development
  • tremendous incentive for invention and innovation
  • large companies can produce more efficiently.
  • they have to worry about potential competition and so will act accordingly
A

cons of market power
-R&D. Since there is no competition, monopolies have little incentive to improve the product
invention and innovation. most new products come from entrepreneurs who were not allowed to pursue their dreams while working for a large firm. They break away and start their own firm
-Economies of scale. increasing scale does lower costs as economies of scale kick in. however, there is not incentive for the monopolist to expand to achieve this advantage
-potential competition. it is more likely the monopolist will take action to suppress potential competition

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14
Q

Barriers to entry

A
  • economies of scale
    • entire range of outputs
    • producers are large
    • ATC declines over long-run through increased efficiency
    • natural monopoly- industry in which economies of scale are so great that the product can be produced by 1 firm at a lower ATC than if the product were produced by more than 1 firm.
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15
Q

an industry in which one firm can achieve economies of scale over the entire range of the market

A

natural monopoly

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16
Q

economies of scale acts as a ‘natural’ barrier to entry

A

natural monopolies

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17
Q

utilities have been example of _____ _____.

A

natural monopolies

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18
Q

_____ _____ are usually regulated by a government agency

A

natural monopolies

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19
Q

Government sets up natural monopolies

A
  • government describes the quality and area of service
  • government sets the rate (price) the natural monopoly can charge its customers
  • the rate is set so there is no economic profit
  • a normal profit is allowed
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20
Q

Natural barriers to entry create a natural monopoly, which is an industry in which one firm can supply the entire market at a lower price than two or more firms can.

A

Market Power

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21
Q

A firm that can satisfy the entire market demand at a lower AC than is possible if two or more firms serve the market

A

natural monopoly

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22
Q

regulated monopoly

A
  • where natural monopoly or economies of scale make 1 firm desirable
  • regulatory commission may attempt to establish legal price
  • setting price equal to MC may cause losses
23
Q

Regulating Natural Monopoly

A
  • when demand and cost conditions create natural monopoly, government agencies regulate the monopoly.
  • with not regulation, the monopoly maximized profit
  • it produces the quantity at which marginal revenue equals marginal cost.
  • regulating a natural monopoly in the public interest sets output where MB=MC and the price equal to marginal cost.
  • this regulation is the marginal cost pricing rule, and it results in an efficient use of resources.
24
Q

Where possible, a regulated natural monopoly might be permitted to price discriminate to cover the loss from marginal cost pricing.
-another alternative is to produce the quantity at which price equals average total cost and to set the price equal to average total cost – the average cost pricing rule

A

average cost pricing allows the firm a normal profit: regulated monopoly

25
Q

Where does market power come from?

A
  • A significant barrier to entry will keep competition out. the sole producer than has total power over market price.
  • the barrier could be due to control of an input, sheer size, or some legal means of excluding competition
  • —patents, copyrights etc.
  • —exclusive franchises
  • —political appointment
  • considerable market power generates resources that could be used by the firm to exert political power
26
Q

In a natural monopoly economies of scale are so powerful that they are still being achieved even when the entire market demand is met
The ATC curve is still sloping downward when it meets the demand curve

A

market power

27
Q

Legal barriers to entry create a ____ ____, a market in which competition and entry are restricted by the granting of a

  • public franchise
  • government license
  • patents and copyrights
A

legal monopoly

28
Q

Legal barriers (legal monopoly)

A
  • patents
  • licenses
  • copyrights
  • trademarks
29
Q

Patents

A
  • exists for 20 years
  • must be submitted to patents office within one year of time of invention
  • must demonstrate that item is new, useful and non-obvious
30
Q

Patent infringement

A

must use of patented product without permission

-inventor can receive damages, attorney’s fees and injunctive relief if successful.

31
Q

copyright

A
  • for books and literary works, music, dramatic works, pantomime and choreography, pictures, and sculptures, movies and architectural works
  • owner of copyright can
  • —reproduce work
  • –distribute copies for sale
  • —perform works
  • —display work publicly
32
Q

copyright infringement

A
  • unauthorized use of registered copyrighted material that violates owners’ exclusive rights
  • fair use- use of copyrighted material for criticism, teaching, reporting, scholarship or research
33
Q

copyright

A
  • extends to life of author plus 70 years

- can be renewed

34
Q

trademark

A
  • identifies goods and distinguishes them from those sold by others
  • signifies goods come from a particular source
  • products are of a certain quality
  • advertises, promotes and assists in selling particular goods
35
Q

tademark

A
  • arbitrary or fanciful marks– inherently distinctive by indicating source of goods but have no direct relationship to product itself (nike swoosh)
  • suggestive marks-hint at characteristics of product or service
36
Q

trademark

A
  • descriptive mark- identify a character or quality of good or service
    - secondary meaning-mark has received widespread use and public recognition so it indicates source of good or service not good or service itself (black and gold or steeler logo)
37
Q

trademark

A

generic marks–no trademark protection because they refer to name or class of good or service and are so common that they do not clearly indicate source of good or service (kleenex, jello, frigidaire)

38
Q

Trademark

A

collective mark-trademark used by a collective association to indicate membership in that organization (NBA, MLB,NHL,NFL)
Service Mark-identifies and distinguishes services of 1 entity from services of another identifies source and quality of an intangible service (NCAA)

39
Q

Trademark

A
  • owners of trademark must use mark in tade i.e. by selling a product or service that uses the mark
  • owners must make continuous, uninterrupted use of mark
  • consumers should be able to identify and distinguish unique goods and services from others in industry
40
Q

trademark

A

may be federally registered (only good in U.S)

  • must be re-registered every 10 years
  • can be licensed by owner-creates a contractual relationship (most colleges and universities apparel)
41
Q

barriers to entry

A

ownership of essential resources

  • rarely complete
  • often can be circumvented
42
Q

monopoly demand

A

demand curve down sloping

  • demand curve for firm is industry demand curve
  • sales can increase only by charging lower prices for products
43
Q

monopoly demand

A
  • MR<P for every level of output except first

- lower P applies to all units of output sold

44
Q

monopoly demand

A

marginal revenue is difference between loss in revenue due to lower price and gain in revenue due to increase in quality sold

45
Q

the demand for a monopolist’s product is the market demand

A
  • to sell more, the more the firm must lower the price

- the amount the seller chooses to offer for sale will influence the market price of the product

46
Q

for a monopoly, marginal revenue is less than price

A
  • the monopolist must lower price to sell more
  • it follows that the extra revenue taken in when one more unit is sold is less than the price of that unit
  • the marginal revenue of any given quantity is less than its price
47
Q

price and marginal revenue

A
  • points on the demand curve indicate a price for each output
  • however to sell more the monopolist must lower the price, so MR will always be less than price
  • for the most part, the MR curve lies below the demand curve
48
Q

Profit maximzation

A

find where the MR curve intersects the MC curve

  • drop down to the output axiz to find the profit maximizing quantity
  • go up the demand curve and then left to the price axis to find the profit maximizing price
49
Q

Profit maximization

A

only one price is compatible with the profit maximizing output

  • –the monopolist will charge that price
  • –if it charges a higher price, profits fall
  • –if it charges a lower price, profits also fall
50
Q

single price monopoly

A

must sell each unit of its output for the same price to all its customers

51
Q

single price monopoly

A

the firm’s demand curve is the market demand curve

-marginal revenue is not the same as the market price

52
Q

a single price monopoly’s output and price decision

A
  • price and output decision
  • –the monopoly faces the same types of technology constraints as the competitive firm, but the monopoly faces a different market constraint
  • —the monopoly selects the profit maximizing level of output in the same manner as a competitive firm, where MR=MC
53
Q

a single price monopoly’s output and price decision

A
  • the monopoly sets its price at the highest level at which it can sell the profit maximizing quantity
  • the monopoly may earn an economic profit, even in the long run, because the barriers to entry protect the firm from market entry by competitor firms
54
Q

marginal revenue and elasticity

A

a single price monopoly’s marginal revenue is related to the elasticity of demand for its good

quiz 4 (1 decks)

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