Chapter 10: Monopoly

patent

a temporary grant of monopoly rights over a new product or scientific discovery that lasts about 20 years

MR

a the perfect price discriminator the _____ curve is the same as the demand curve

no close substitutes

"___________" decides whether or not a firm or market is a monopoly

network externalities

additional benefits enjoyed by all users or a good or service because others use it as well

price discrimination

charging different prices to different consumers based on differences in the prices consumers are willing to pay

perfect price discrimination

charging each customer the most he or she would be willing to pay for each unit purchased

price setting constraints

determined by the given market demand curves a monopoly faces and the tradeoff (i.e the more it charges for a product, the fewer units it will be able to sell)

production costs contraints

determined by the monopoly's production technology and by the prices it must pay for its inputs

downward

economies of scale in production causes a firm's LRATC curve to slope ___________

P - ATC

formula for profit per unit

will

monopolies ______ earn economic profit in the long run equilibrium

enter; economic profit; unable; does not

new firms will want to ______ an industry when a monopoly is earning __________ but will be _______ to do so; the market (does/ does not) provide mechanisms to eliminate monopoly profit

price

once the firm has determined its output level it has also determined its ______

output level

once the firm has determined its price, is has also determined its ________

will not

perfectly competitive firms _______ earn a profit in the long run equilibrium

into; increasing

profit attracts new firms _____ the market, ________ market production and causing the market price to fall eliminating any temporary profit earned by a competitive firm

market power

the ability of a seller to raise price without losing all demand for the product being sold

less; AVC; MR=MC

a monopoly will shut down if P is _______ than ______ where ________

higher; lower

ALL ELSE EQUAL, a monopoly market will have a ______ price and _____ output than a perfectly competitive market

natural monopoly

Firms such as Con Ed that supply us with public utilities like water, heat, and electricity are examples of ____________

intellectual property

Literary, artistic, musical, and scientific works are all examples of _________

True

True or False? A company that is the only producer of a drug that cures cancer is a monopoly.

true

True or False? The US Postal service is an example of government franchise

protection of intellectual property; government franchise

Two legal barriers to entry when monopolies arise are __________ and __________

economies of scale, legal barriers, network externalities

What are the three barriers to entry when monopolies arise?

government franchise

a government granted right to be the sole seller of a product or service; any other firm that enters the market will be prosecuted

copyright

a grant of exclusive rights to sell a literary, artistic, or musical work that lasts for at least 70 years

monopoly

a market in which only one firm sells a product with no close substitutes; the single firm that sells in that market

greater; ATC; MR=MC

a monopoly earns a profit when P is _______ than _______ where __________

single-price monopoly

a monopoly firm that is limited to charging the same price for each unit of output sold

less; ATC; MR=MC

a monopoly suffers a loss when P is ______ than _______ where _______

natural monopoly

a monopoly that arises when, due to economies of scale, a single firm can produce for the entire market at lower cost per unit than could two or more firms

rent seeking activity

any costly action a firm undertakes to establish or maintain its monopoly status

below

average variable cost curve lies ______ the average total cost curve

below

marginal revenue (MR) curve will always be _____ the demand curve

ownership and control; regulation; prices and profits

in a governement franchise, the monopoly must submit to either government ___________ or government ________ over its ____________

more beneficial

joining a larger network is ___________ than joining a smaller network

market power; willingness to pay; resale

to successfully price discriminate, the firm must satisfy these three conditions: ______, identify _______, and prevent _______

price discrimination

when a firm charges different prices to different customers for reasons other than differences in cost

natural monopoly

when governments think the market is a ________ they grant franchises

ensuring; rise

when governments want to serve the public interest by _____ that there are no competitors that would cause cost per unit to ______ they grant franchises