CH 12 MONOPOLY
monopolies are a price
maker
A report by the Wall Street Journal found there were several online retailers that offered customers different prices based on their browsing history and other characteristics. This is an example of ____________.
third-degree price discrimination.
Which of the following describes a monopolist's demand curve?
A y-intercept of $8 and downward-sloping with a slope of 1.
price for monopolies
P > MR = MC
Which of the following equations calculates economic profits for a monopoly?
Profits = (P-ATC)xQ
When comparing the graph of your ATC curve for a natural monopoly with that of a firm in perfect competition, we see that ____________.
a natural monopoly has a downward-sloping ATC curve, while a firm in perfect competition has a U-shaped curve.
When do natural monopolies occur?
fixed costs are high
If a monopoly selling 300 computers at $3,000 decides to lower its price to $2,000 in order to sell 100 more computers, then the firm
has negative marginal revenue.
type of product perfect competition has
homogenous
A monopoly is selling workbooks to students in a college town and is currently maximizing profits by charging $70 per book. The marginal cost of textbooks
is less than $70
Consider the differences, if any, between a perfectly competitive market and a monopoly market. Compared to a perfectly competitive market, consumer surplus is lower / higher , producer surplus is higher / lower , and deadweight loss is higher / lower
lower, higher, higher
how many sellers are in a perfect competition
many
For a market to be characterized as perfectly competitive , there must be ___________.
many sellers, where the price of the good is determined by the market
in a perfect competition social surplus is
maximized
Why is monopoly a market failure
monopolist don't maximize profits lack of competition does not make producer compete by lowering prices monopolists behave competitively even without competition
type of product monopoly has
no close substitutes
How many sellers are in a monopoly?
one
long equilibrium profits for a monopolistic market are
potentially greater than zero
Edgar says that a single firm in the wind power industry is unlikely to have a significant degree of monopoly power for an extended period of time. Since the cost of producing an additional unit of wind energy is so low, a large number of firms can enter the market and compete away economic profits. Do you agree with this analysis?
No, Edgar's argument ignores potentially large fixed costs that will act as a barrier to entry.
Price in perfect competition
P = MR = C
As this chapter explains, a monopoly is an industry structure where only one firm provides a good or service that has no close substitutes. This question explores the last part of this definition further. In 1947, the United States government charged the DuPont Company with a violation of the Sherman Act. The government argued that DuPont was monopolizing the cellophane market. At trial, the government showed that DuPont produced nearly 75 percent of all of the cellophane sold in the United States each year. Nonetheless, the U.S. Supreme Court ruled in favor of DuPont and dismissed the case. Which of the following is a likely argument used by DuPont to convince the Supreme Court that it did not violate the Sherman Act?
There are many close substitutes for cellophane such as aluminum foil and waxed paper, so DuPont did not have significant market power.
Sirius XM Satellite Radio and XM Satellite Radio were the only two satellite radio providers in the United States. The Department of Justice (DOJ) and the Federal Communications Commission (FCC) approved the merger of the two companies in 2008 even though Sirius-XM would then control 100 percent of the satellite radio market. Which of the following arguments do you think Sirius and XM used to convince the DOJ and the FCC to allow the merger to proceed?
There are many close substitutes for satellite radio; therefore, Sirius-XM would not exercise market power.
Which of the following best describes network externalities?
They occur when a product's value increases as more consumers begin to use it.
When a firm exercises its monopoly power, social surplus is lower / higher when compared to a perfectly competitive market.
lower
in a monopoly social surplus is
not maximized (market failure)
perfect competition is a price
taker
Which of the following is not one of the sources of natural market power? a. having individual expertise in a field b. network externalities c. controlling a key resource d. production of a luxury good
production of a luxury good
Janet knows a lot of people who do not like Marmite®, a yeast extract that is used as a spread on toast. She says that Marmite is so unpopular that Unilever, the company that manufactures Marmite®, cannot possibly have any monopoly power. Do you agree with this analysis?
No, monopoly power is based on whether a good has any close substitutes, not whether your friends like the product.
In which of the following ways is a monopoly beneficial to an economy? A.Monopoly profits give firms more reason to invest in the creation of new products through research and development. B. Firms that are allowed monopoly profits search out innovative technologies that they can bring to market. C. With natural monopolies, costs may be lower than those that would exist in competitive markets with many producers. D. All of the above.
All of the above
When a firm exercises its monopoly power, the cost to society is the ____________.
deadweight loss
demand curve for a monopoly
downward sloping
By forcing monopolists to set price equal to marginal cost,
economic loss can occur.
The demand curve for a perfectly competitive firm is
horizontal (perfectly inelastic)
Which of the following is not a characteristic of monopoly? A. Market power. B. Produces identical goods. C single seller. D Price-maker.
produces identical goods
long equillibruim profits for a perfectly competitive market are
zero
