Chapter 15 Econ

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fundamental cause of monopoly is

barriers to entry

a monopoly's marginal-revenue curve lies_______ its demand curve

below

the law governing patents and copyrights have ________ and costs

benefits

antitrust laws allow government to ________ companies

break-up

marginal cost equation

change in total cost / change in quantity of output

marginal revenue is

change in total revenue / change in quantity (output)

As a market expands, a natural monopoly can evolve into a more __________ market

competitive

consumer surplus

customers' willingness to pay for a good minus the amount they actually pay for it

the inefficiency of monopoly can be measured with a

deadweight loss triangle

for monopolies, the socially efficient quantity is found where the ________ curve and the marginal cost-curve intersect

demand

the deadweight loss of monopoly firm is represented between the ________ and the marginal-cost curve

demand

competitive firm faces horizontal

demand curve

monopoly firm's market demand curve is its own __________

demand curve

the monopolist's demand curve slopes ______

downward

when a firm is a natural monopoly, it is less concerned about new _______ eroding its monopoly power

entrants

monopolies take the point and the intersection of marginal-revenue and marginal-cost (profit-maximizing point) and find their quantity by

going up with a line to the demand curve (the point where it is above MR/MC intersection)

marginal revenue is negative when the price effect on revenue is _______ the output effect

greater than

market price in competitive firm (graph) is a

horizontal line

benefit of copyright and patent laws are

increased incentive for creative activity

if a monopolist raises the price of its good, consumers buy ______ of it

less

antitrust laws prevent companies from coordinating their activities in ways that make markets ________________

less competitive

the monopolist produces ______ the socially efficient quantity of output

less than

a monopolist's marginal revenue is always ________ than the _____ of its good

less, price

monopoly firm is a price

maker

a monopoly charges a price that exceeds _________

marginal cost

competitive firms take the price of output as given by the market and then chooses the quantity... so that price equals ____________

marginal cost

in competitive markets, price =

marginal cost

in monopolized markets, price exceeds

marginal cost

a firm's profit-maximizing quantity of output is determined by the intersection of the _______ and the _______ curve

marginal-revenue, marginal-cost

because a competitive firm can sell all it wants at the _________ there is no _________

market price, price effect

when a firm's average total cost curve continually declines, the firm has what is called a

natural monopoly

if government sets marginal-cost price, the government subsidizes the natural monopolist by ___________ losses inherent in marginal-cost pricing

picking up

antitrust laws allow government to _____ mergers

prevent

for competitive and monopoly firms, average revenue always equals the ______ of the good

price

this market power alters the relationship between the firm's cost and the _______ at which it sells its product

price

for competitive firms, marginal revenue equals

price (of its good)

marginal revenue of the first unit sold equals

price of the good (important to know for graphing)

antitrust laws give government various ways to

promote competition

governments can make privately owned natural monopolies _____

public (run the monopoly itself)

when monopoly increases the production by 1 unit, is must _____ the price it charges

reduce

if marginal cost is greater than marginal revenue, the monopoly can raise profit by ________ production

reducing

for natural monopolies, government agencies _______ their prices

regulate

_______ is a common solution in the case of natural monopolies

regulation

a natural monopoly rises when there are economies of scale over the

relevant range of output

in a market with a natural monopoly, would-be entrants know that they cannot achieve the same low cost because, after entry, each firm would have a ____________ of the market

smaller piece

competitive firm is a price

taker

producer surplus

the amount producers receive for a good minus their costs of producing it

benefits of copyright and patent laws are offset (to some extent) by

the costs of monopoly pricing

the key difference between a competitive firm and a monopoly is

the monopoly's ability to influence the price of its output

the demand curve that any one competitive firm faces is perfectly elastic because

there are many perfect substitutes

each of the policies aimed at reducing the problem of monopoly has drawbacks, so some economists argue that it is often best for the government ______

to do nothing

the outcome of a monopoly fails to maximize _________

total economic well-being

because a high price reduces the quantity that its customers buy, the monopoly's profits are not ______

unlimited

profit equation (more complex version)

(P-ATC) x Q

for a competitive firm : P =

MR = MC

for a monopoly firm : P >

MR = MC

total revenue is

P x Q

(price effect) when a monopoly increases the amount it sells, the price falls, so ___ is lower, which tends to decrease ______

P, total revenue

(output effect) when a monopoly increases the amount it sells ____ is higher, which tends to increase _______

Q, total revenue

average total cost equation

TC/Q

profit equation (simple, involving total revenue and total cost)

TR - TC

monopolist's profit is

TR-TC

average revenue is

TR/Q

average revenue equation, which equals ______

TR/Q price

monopoly

a firm that is the sole seller of a product without close substitutes

natural monopoly

a monopoly that arises because a single firm can supply a good or service to an entire market at a smaller cost than could two or more firms

3 sources of barriers to entry

1) a key resource (required for production) is owned by a single firm 2) the government gives a single firm the exclusive right to produce some good or service 3) a single firm can produce output at a lower cost than can a large number of producers


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