Chapter 12 Homework

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

maker

Which of the following are examples of geographic monopolies?

A small town served by one airline A small town with one restaurant A small town with one railroad

Which of the following describes why marginal revenue is less than price for monopolists?

Because the lower price of the extra unit of output also applies to all prior units of output

How does a monopolist change the price of its product?

By changing the quantity of the product it produces.

In general, how do economists think that the government should address monopolies?

By judging them on a case-by-case basis

Which of the following lead to declines in long-run average total costs?

Greater use of specialized inputs Network effects Spreading of product development costs

Which of the following are examples of X-inefficiencies that may be found in regulated firms?

Higher-than-competitive wages More managers and staff than necessary Nicer-than-typical office buildings

Which of the following are entry barriers created by monopolists?

Increased advertising Price reductions

Which are types of barriers to entry?

Legal Economic Technological

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 assumptions made in the model of pure monopoly?

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

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

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

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

Which of the following contribute to the complexities involved in fair-return pricing?

Rate decisions that require extensive public input through letters and hearings Large rate-setting bureaucracies The difficulty of determining what the fair-return price should be

Which of the following have helped firms achieve economies of scale?

Specialized inputs Simultaneous consumption Learning by doing

Which of the following are reasons that a monopolist is considered a price maker?

The monopolist exerts control over the price. The monopolist controls the total quantity supplied.

Which of the following explains the reasons for short-run losses and long-run bankruptcy when a socially optimal price is forced on a monopoly?

The regulated price may be so low that average total costs are not covered.

Which of the following reasons explains why a professional sports team can be considered a monopoly?

They are the sole suppliers of specific services in a large geographic area.

When faced with continuing losses, what do the owners of a monopoly do?

They move their resources to alternative industries in the long run.

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 not seek the highest price possible because

a monopolist seeks maximum profit, not maximum price.

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

Monopoly yields neither productive nor _________ efficiency.

allocative

At the profit-maximizing (loss-minimizing) output for a monopoly, if average revenue is less than average total costs, then the monopoly is experiencing

an economic loss

Monopoly is a legitimate concern because monopolists charge prices that are higher than marginal costs, which results in _______.

an underallocation of resources to the monopolized product

As an example of ______, the Federal Communications Commission licenses only so many radio and television stations in each geographic area.

barriers to entry

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

barriers to entry

With a fixed downward-sloping demand curve, how can a monopolist increase sales?

by charging a lower price

______ of essential property is a barrier to entry into an industry.

control

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

In price discrimination, the price differences are not justified by ______ differences.

cost

Marginal revenue is less than price at every unit of output because the monopolist

could have sold these prior units at a higher price if it had not produced and sold the extra output.

Efficiency loss is also known as ______ loss.

deadweight

A natural yoccurs when the market demand curve crosses the long-run average total cost (ATC) curve where average total costs are still ______.

declining

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 ___

declining

A pure monopolist must face a downward-sloping product _________ curve

demand

The key difference between a pure monopolist and a purely competitive seller lies on the ______ side of the market.

demand

Price ______ is illegal in the United States only if it is part of a firm's strategy to lessen or eliminate competition.

discrimination

Price makers are firms with:

downward sloping demand curves

What is the shape of the product demand curve for a pure monopolist?

downword sloping

Which of the following is more likely for a pure monopolist than for a pure competitor?

economic profit

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

Modern technology can be a cause of extensive ______.

economies to scale

What is another name for deadweight loss?

efficiency loss

Production occurs up to that level of output at which price ______ marginal cost, resulting in allocative efficiency under pure competition.

equals

______ create(s) legal barriers to entry.

government

In many large cities, the number of taxicabs allowed to operate is limited by the local government through the ______.

issues of licensing

Government creates _____ barriers to entry

legal

The price-discriminating monopolist charges a higher price to customers who have ______ elastic demand and a lower price to customers who have ______ elastic demand.

less ; more

With a fixed downward sloping demand curve, the pure monopolist can only increase sales by charging a ______ price.

lower

Monopolists use economies of scale to block the entry of new firms into an industry by ______.

lowering prices so that another firm cannot compete

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

marginal

The socially optimal price is where a monopoly's price is equal to

marginal cost

In a pure monopoly, ______ is less than the price for every unit of output except the first.

marginal revenue

Which of the following can be a cause of extensive economies of scale?

modern technology

Network effects may drive a market toward , ________ because consumers tend to choose standard products that everyone else is using.

monopoly

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

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

____ power achieved through patents may be self-sustaining because the profit from one patent can finance the research required to develop new patentable products.

monopoly

______ power achieved through patents may be self-sustaining because the profit from one patent can finance the research required to develop new patentable products.

monopoly

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

natural monopoly

When the market demand curve crosses the long-run average total cost curve where average total costs are declining, the firm is called a(n)

natural monopoly

First Data Corporation accounts for 80% of the market for money order transfers. This is an example of a _____ - monopoly

near

Because Intel provides 80% of the central microprocessors used in personal computers, it is a:

near-monopoly

____effects exist if the value of a product to each user increases as the total number of users increase.

network

In the long run, only ______ for a pure competitor are possible, whereas a monopoly earns ______.

normal profits; economic profits

The pharmaceutical industry is an example of an industry that has achieved self-sustaining monopoly power through ______ on drugs.

patents

The strongest barriers to entry effectively block all ______.

potential competition

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

price discriminate

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)

Monopolists use economies of scale to block the entry of new firms into an industry by reducing ______ so that other firms cannot compete.

prices

In pure competition, ______ efficiency is achieved because free entry and exit forces firms to operate where average total cost is at a minimum.

productive

______ utilities are government owned or regulated.

public

Entry is totally blocked to competitors in a(n) ______.

pure monopoly

What is it called when a firm spends significant money to maintain a monopoly through government legislation?

rent seeking expenditures

Which of the following add nothing to the firm's output, but increase the firm's costs?

rent seeking expenditures

At output levels prior to MR=MC, marginal ______ is higher in comparison to marginal ______.

revenue ; cost

The ______ price is where a monopoly's price is equal to marginal cost.

socially optimal

One reason that fair return pricing is so complex is because regulatory commissions must set prices that are ______ costs to create fair returns; therefore, regulated monopolists have little incentive to minimize average total costs.

sufficiently greater than

What does a price that exceeds marginal cost indicate for a product sold by a monopolist firm?

that resources for the product are underallocated

What aspect of the market defines the crucial difference between a pure monopolist and a purely competitive seller?

the demand curve

In a pure monopoly, marginal revenue is less than price for every unit of output except which one?

the first

Which of the following is a reason for a monopolist to use price discrimination?

to increase its profits

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

total

What is the effect on total profit when a firm charges a higher price to groups with inelastic demand and a lower price to groups with elastic demand instead of charging a everyone a single monopoly price?

total profit increases