Chapter 15 Econ
Which of the following would be most likely to have monopoly power?
A local cable TV provider
Which of the following can eliminate the inefficiency inherent in monopoly pricing?
Price discrimination
For a monopoly, the socially efficient level of output occurs where
Price equals marginal cost
Which of the following is a necessary characteristic of a monopoly?
The firm is the sole seller of its product.
When a firm has a natural monopoly, the firm's
average total cost curve is downward sloping.
If government regulation sets the maximum price for a natural monopoly equal to its marginal cost, then the natural monopolist will
earn economic losses.
A benefit to society of the patent and copyright laws is that those laws
encourage creative activity.
When deciding what price to charge consumers, the monopolist may choose to charge them different prices based on the customers'
geographical location.
A monopolist's profits with price discrimination will be
higher than if the firm charged just one price because the firm will capture more consumer surplus.
For a firm to price discriminate,
it must have some market power.
In order to sell more of its product, a monopolist must
lower its price.
If a pharmaceutical company discovers a new drug and successfully patents it, patent law gives the firm
sole ownership of the right to sell the drug for a limited number of years.
The law passed in 1914 that strengthened the government's powers and authorize
the Clayton Antitrust Act.
One problem with government operation of monopolies is that
The government typically has little incentive to reduce costs
Reduced competition through merging of companies will raise social welfare
If the benefit from the synergies exceeds the social cost of increased market power.
A firm cannot price discriminate if
It operates in a competitive market.
A perfectly price-discriminating monopolist is able to
Maximize profit and produce a socially optimal level of output.
A natural monopoly occurs when
There are economies of scale over the relevant range of output
The fundamental source of monopoly power is
barriers to entry.
A monopoly can earn positive profits because it
can maintain a price such that total revenues will exceed total costs.
When a firm operates under conditions of monopoly, its price is
constrained by demand.
If the distribution of water is a natural monopoly, then
multiple firms would likely each have to pay large fixed costs to develop their own network of pipes.
Antitrust laws have economic benefits that outweigh the costs if they
prevent mergers that would decrease competition and raise the costs of production.
Selling the same good at different prices to different customers is known as
price discrimination.
Which of the following is not an example of price discrimination by a firm?
A natural gas company charging all customers a higher rate in the winter than in summer
Which of the following is not an example of a barrier to entry?
An entrepreneur opens a popular new hair salon.
The deadweight loss associated with a monopoly occurs because the monopolist
Produces an output level less than the socially optimal level
A government-created monopoly arises when
The government gives a firm the exclusive right to sell some good or service.
Price discrimination is a ration strategy for a profit maximizing monopolist when
There is no opportunity for arbitrage across market segments
When regulators use a marginal-cost pricing strategy to regulate a natural monopoly, the regulated monopoly
Will experience a loss
Monopolies are socially inefficient because the price they charge is
above marginal cost.
A movie theater can increase its profits through price discrimination by charging a higher price to adults and a lower price to children if it
can prevent children from buying the lower-priced tickets and selling them to adults.
If a monopolist is able to perfectly price discriminate,
consumer surplus and deadweight losses are transformed into monopoly profits.
The social cost of a monopoly is equal to its
deadweight loss.
Arbitrage is
the process of buying a good in one market at a low price and selling the good in another market for a higher price in order to profit from the price difference.
Which of the following statements is not correct?
Antitrust laws automatically prevent mergers between companies that produce similar products.
Which of the following can defeat the profit-maximizing strategy of price discrimination?
Arbitrage
In order for antitrust laws to raise social welfare, the government must
Be able to determine which mergers are desirable and which are not
Monopoly firms face
Downward-sloping demand curves, so they can sell only the specific price-quantity combinations that lie on the demand curve
Granting a pharmaceutical company a patent for a new medicine will lead to
a product that is priced higher than it would be without the exclusive rights.