ECO 2023 - Chapter 15

When a monopolist increases the amount of output that it produces and sells, its average revenue

decreases and its marginal revenue decreases

Drug companies are allowed to be a monopolist in the drugs they discover in order to

encourage research

One method used to control the ability of firms to capture monopoly profit in the US is through

enforcement of antitrust laws

Price discrimination explains why Ivy League universities often set rules that determine prices of admission based on students'

financial resources

Patent and copyright laws are major sources of

government-created monopolies

For a firm to price discriminate, it must

have some market power

Inefficiency arises from a monopoly because

some buyers will refrain from buying the good, due to the high price

The legislation passed by Congress in 1890 to reduce the market power of large and powerful "trusts" is called

the Sherman Act

A government-created monopoly arises when

the government gives a firm the exclusive right to sell some good or service

Many movie theaters allow discount tickets to be sold to senior citizens because

the theaters are profit maximizers

Additional firms often do not try to compete with a natural monopoly because

they know they cannot achieve the same low costs that the monopolist enjoys.

For a monopoly firm, the level of output at which marginal revenue equals zero is also the level of output at which

total revenue is maximized

Economic well-being is measured by

total surplus and the sum of consumer surplus and producer surplus

Antitrust laws allow the government to

-prevent mergers -break up companies -promote competition

Government-run monopolies may lead to undesirable outcomes in the form of

-special interest groups that attempt to block cost reductions -customers and taxpayer losses when the monopoly operates inefficiently -the political system as the only form of recourse for customers

When regulators use a marginal cost pricing strategy to regulate a natural monopoly, the regulated monopoly

-will experience a loss -will experience a price below average total cost -may rely on a government subsidy to remain in business

Competitive firms and monopolists differ in what way?

a competitive firm's marginal revenue curve is horizontal; a monopolist's marginal revenue curve is downward sloping

Dick obtains a copyright for the new computer game he invented. What is this an example of?

barrier of entry

The costs of production make a single firm more efficient than a large number of firms. What is this an example of?

barrier to entry

The fundamental cause of monopoly is

barriers to entry

As a monopolist increases the quantity of output it sells, the price consumers are willing to pay for the good

decreases

Marginal revenue can become negative for

monopoly firms, but not for competitive firms

In view of what we know about the relationship between average total cost and marginal cost, the marginal cost curve for this firm

must lie entirely below the average total cost curve

When a firm experiences naturally declining average total costs, the firm is a

natural monopoly

For a monopolist, when does the marginal revenue exceed average revenue?

never

What is not a characteristic of a monopoly?

one buyer

The deadweight loss associated with a monopoly occurs because the monopolist

produces an output level less than the socially optimal level

Economists assume that monopolists behave as

profit maximizers