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Micro economics > Test 4 > Flashcards

Test 4 Flashcards

1
Q

What is a monopoly?

A
  1. The firm must have something unique to sell, that is without substitutes.
  2. It must have a way to prevent competitors from entering the market.
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2
Q

What is monopoly power?

A

The ability to se the price of a good or a service.

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3
Q

What are barriers to Entry?

A

Are restrictions that make it difficult for new firms to enter a market.

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4
Q

Natural barriers of entry are what?

A
  1. Control of resources
  2. Problems raising capital
  3. Economies of scale
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5
Q

Occur when long-run average costs fall as production expands.

A

Economies of scale

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6
Q

In many instances it makes sense to give a single firm the exclusive right to sell a good or service.

A

Licensing

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7
Q

What are some cons of licensing?

A

To minimize negative externalities, government occasionally establish monopolies, through licensing requirements. Licensing can cause corruption.

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8
Q

What is a pro of Patents and Copyright law?

A

A Pro of patents and copyright law is that it is the government’s assurance that no one else can play or sell an artist work without permission.

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9
Q

What is a con of Patents and Copyright law?

A

By granting patents and copyrights, to developers and investors the government creates monopolies.

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10
Q

These firms cannot affect the price.

A

Perfectly competitive firms

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11
Q

These firms set the price by choosing output level.

A

Monopolies

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12
Q

The graph for a perfect competition is represented by a _______.

A

Horizontal line

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13
Q

The graph for a monopoly firm is represented by_______.

A

An almost vertical line

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14
Q

What is the profit maximizing rule for any firm?

A

MR = MC

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15
Q

Under perfect competition P = __.

A

MR

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16
Q

With a monopoly P is ____ than MR.

A

Greater than

17
Q

Why does TR increase and then decrease?

A
  1. Price effect

2. Output effect

18
Q

Existing customers save money as the price decreases but the firm still experiences higher TR until it charges a certain price.

A

Price effect

19
Q

The lower price attracts more new customers but the output effect eventually is less than the price effect.

A

Output effect

20
Q
  1. Many firms
  2. Cannot earn long-run economic profit
  3. Has no market power (is a price taker)
  4. Produces an efficient level of output (because p=mc)
A

competitive market

21
Q
  1. One firm
  2. May earn long-run economic profits.
  3. Has significant market power (price maker)
  4. Produces less than the efficient level of output (P greater than MC)
A

monopoly

22
Q

TR=

A

Price x Quantity

23
Q

MR=

A

change in TR / change in Quantity

24
Q

MC=

A

change in TC / change in Q

25
Q

P=

A

TR-TC

26
Q

A profit maximizing monopolist will set its price and output where demand is inelastic?

A

False

27
Q

What are the three main problems with monopolies?

A
  1. Inefficient Output and Price
  2. Few choices for consumers
  3. Rent Seeking
28
Q

Output Quantity:

A

QM greater than QC

29
Q

Price:

A

PM greater than PC

30
Q

Occurs because the monopolists produces an output of QM, an amount that is less than QC, the result is a _________.

A

Dead weight loss

31
Q

Occurs when resources are used to secure a monopoly right through political process.

A

Rent seeking

32
Q

What are the three possible solutions to the problems associated with monopolies?

A

Breaking up the monopoly, Reducing trade barriers, Regulating Markets.

33
Q

A. tariffs-taxes on imported goods.
B. Quota-limits the possible gains from trade.
C. Reducing barriers creates more competition and promotes efficient use of resources.

A

reducing trade barriers

34
Q

A. Promote competition, which can reduce or eliminate deadweight loss.
B. Antitrust law: Sherman ACT (1890)

A

Breaking up the monopoly

35
Q

Why not break up natural monopolies?

A

Breaking up a company that provides natural gas, water, or electricity would result in higher production cost for consumers.

Micro economics (1 decks)

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