Chapter 11: Pure Monopoly

Which of the following does the monopolist not have?

A supply curve

Why might a monopolist accept a less-than-maximum per-unit profit?

Additional sales more than compensate for the lower profit per unit.

What is the term for factors that prohibit firms from entering an industry?

Barriers to entry

It is difficult to start up a major league sports team because existing professional teams have contracts with the best players and long-term leases on stadiums. Which barrier to entry does this illustrate?

Control of a key resource

The practice of charging different prices to different buyers for a specific product is known as price _____

Discrimination

What term is used to describe declining average total costs with added firm size?

Economic of scale

How does a monopoly generally transfer income?

From consumers to the owners of the monopoly.

If producing is preferable to shutting down, a profit-seeking monopolist will produce up to the output at which ______.

MR=MC

Which of the following are characteristics of public utilities?

Monopolies or near monopolies. Government owned or regulated.

Which of the following are conditions necessary for price discrimination?

No resale Monopoly power Market segregation

If the objective of government is to achieve allocative efficiency, what kind of price should government establish for the monopolist?

One that is equal to its marginal cost.

Which of the following are the main characteristics of a pure monopoly?

Presence of a single seller. Blocked entry for other firms. Control over the price. Unavailability of close substitutes for its products.

_______ utilities are government owned or regulated.

Public

Which of the following exists when a single firm is the sole producer of a product for which there are no close substitutes?

Pure monopoly

What is the term used to refer to a product's ability to satisfy a large number of consumers at the same time?

Simultaneous consumption

A pure monopoly exists when a single firm is the sole producer of a product for which there are no close ______.

Substitutes

Which of the following are assumptions made in the model of pure monopoly?

The firm is a single-price monopolist and charges the same price for all units of output. No unit of government regulates the firm. Patents, economies of scale, and resource ownership secure the firm's monopoly.

If a firm is found guilty of achieving a monopoly through anticompetitive actions, then which of the following may occur?

The firm may be expressly prohibited from engaging in certain business activities. The firm may be broken into two or more competing firms.

Which of the following explains why a pure monopolist is able to maintain an economic profit in the long run?

There are no new entrants to increase supply, drive down price, and eliminate profit.

How do network effects create barriers to entry in the social media industry?

They discourage people from using lesser-known networks.

How much will a profit-seeking monopolist produce if producing is preferable to shutting down?

Up to the output at which marginal revenue equals marginal cost.

A monopolist will never choose a price-quantity combination where price reductions cause:

a decrease in total revenue

If the objective of government is to achieve _____ efficiency, it should establish a legal price for the monopolist that is equal to its marginal cost.

allocative

The government broke up Standard Oil in 1911 due to its breach of ____ laws. (Enter one word in the blank.)

anti-trust

A monopolist does not achieve productive efficiency because it produces a level of output that does not correspond to the minimum point of the _____ cost curve. (Enter only one word per blank.)

average total

The monopolist's level of output is not at the minimum point of ______, meaning it will not be productively efficient.

average total cost

Two legal ______ to entry are patents and licenses.

barriers

Simultaneous ____ is a product's ability to satisfy a large number of consumers at the same time.

consumption

Economies of scale refer to ______ average total costs with added firm size.

declining

Price _____ , or charging different prices to different consumers, is widely practiced in the US economy.

discrimination

Price makers are firms with:

downward-sloping demand curves

A natural monopoly may occur when only a single firm can achieve the ____ of scale necessary to compete in an industry.

economies

The demand curve intersects the natural monopolist's long-run average total cost curve at a point where long-run average total costs are still falling, due to ______.

economies of scale

The monopolist wants a price-quantity combination to fall in the ______ section of its demand curve, where a lower price means ______ total revenue.

elastic; greater

With a natural monopoly the demand curve intersects the long-run average total cost curve where the long-run average total cost curve is still ______

falling or declining

True or false: Price discrimination is not practiced very often in the US economy.

false

______ create(s) legal barriers to entry.

government

X-inefficiency occurs when a firm operates at a cost that is ____ (higher/lower) than the lowest cost for a particular level of output.

higher

As an example of price discrimination, airlines charge higher fares to business travelers whose demand for travel is _____ and offer lower, more restricted fares to vacationers and others with more _____ demand.

inelastic elastic

Government creates _____ barriers to entry.

legal

When a monopolist charges a higher price than a purely competitive firm would, the monopolist essentially ______.

levies a "private tax" on consumers.

Firms with downward-sloping product demand curves are called price ____

makers or setters

The change in total revenue associated with a one-unit change in output is called _____ revenue.

marginal

A(n) ______ is able to maintain an economic profit in the long run because there are no new entrants to increase supply, drive down price, and eliminate economic profit.

monopoly

Patents, economies of scale, and resource ownership are all assumptions of the pure ______ model.

monopoly

Slashing prices is an example of an entry barrier created by a(n) ______

monopoly

The main characteristics of a pure _____ are a single seller, no close substitutes, a price maker, blocked entry, and non-price competition.

monopoly

The presence of network effects can predispose an industry toward which of the following?

monopoly

What may occur when only a single firm can achieve the economies of scale necessary to compete in an industry?

natural monopoly

In general, as shown in the figure, a fair return price will lead to ______ and a socially optimal price will lead to ______.

normal profit; economic loss

Which of the following is considered a barrier to entry into an industry?

ownership pf essential property

What are the two legal barriers to entry created by the government?

patents licenses

The strongest barriers to entry effectively block all Blank______.

potential competition

Market segregation must exist in order for a monopolist to ______.

price discriminate

Baseball ticket sellers charge a different price for adults and children. Ballpark concession stands charge the same prices for products sold to any customer. The baseball ticket sellers are providing a successful example of _____

price discrimination

What is the term used to refer to charging different prices to different buyers of a specific product?

price discrimination

Which of the following are potential solutions to the economic losses incurred by a regulated monopoly caused by socially optimal pricing?

price discrimination public subsidies

A regulated monopoly is likely to suffer losses when ______.

price is set to achieve the most efficient allocation of resources. price is set to marginal cost (P = MC).

Which of the following are entry barriers created by monopolists?

price reductions increased advertising

Two solutions to the economic losses caused by socially optimal pricing are providing public _____ and condoning price discrimination.

subsidy

A monopolist does not have a supply curve because:

there is no single, unique price associated with each level of output. it does not equate price with marginal cost.

Marginal revenue is the change in ______ revenue associated with a single-unit change in output.

total

The monopolist seeks maximum _____ profit, not maximum unit profit.

total

When a firm produces a specific output level at a higher cost than the necessary cost for that level of output, it is called ______.

x-inefficiency