ECON 101 - Ch 15 Questions

The price effect describes the situation when a monopolist lowers the price of output and, all else equal, total revenue

decreases.

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

encourage research.

Splitting up a monopoly is often justified on the grounds that

competition is inherently efficient.

When a firm operates under conditions of monopoly, its price is

constrained by demand.

The amount that producers receive for a good minus their costs of producing it equals

producer surplus.

The deadweight loss associated with a monopoly occurs because the monopolist

produces an output level less than the socially optimal level.

Which of the following is a characteristic of a monopoly market?

​A product with no close substitutes.

The fundamental source of monopoly power is

barriers to entry.

​When the market for a good is a natural monopoly, this results in

​dominance by a single producer of the good.

A profit-maximizing monopolist charges a price of $12. The intersection of the marginal revenue and marginal cost curves occurs where output is 10 units and marginal cost is $6. Average total cost for 10 units of output is $5. What is the monopolist's profit?

$70

Which of the following is a characteristic of a natural monopoly?

All of the above are correct.

Which of the following is not an example of a barrier to entry?

An entrepreneur opens a cupcake bakery.

How does a competitive market compare to a monopoly that engages in perfect price discrimination?

In both cases, total social welfare is the same.

Which of the following statements is not correct?

Part of the deadweight loss associated with monopoly is measured by the monopolist's economic profit.

Which of the following is an example of public ownership of a monopoly?

U.S. Postal Service

What is the shape of the monopolist's marginal revenue curve?

a downward-sloping line that lies below the demand curve

Which of the following would be most likely to have monopoly power?

a local cable TV provider

When we compare economic welfare in a monopoly market to a competitive market, the profits earned by the monopolist represent

a transfer of benefits from the buyer to the seller.

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 is known as

arbitrage.

Suppose a monopolist chooses the price and production level that maximizes its profit. From that point, to increase society's economic welfare, output would need to be increased as long as

average revenue exceeds marginal cost.

Suppose that the DeBeers company faces very little competition from other firms in the wholesale diamond market. Why isn't the price of wholesale diamonds $10,000 per carat?

because the company would sell so few diamonds that it would earn higher profits by selling at a lower price

A monopoly

can set the price it charges for its output but faces a downward-sloping demand curve so it cannot earn unlimited profits.

Marginal revenue for a monopolist is computed as

change in total revenue per one unit increase in quantity sold.

The economic inefficiency of a monopolist can be measured by the

deadweight loss.

The social cost of a monopoly is equal to its

deadweight loss.

In a competitive market, a firm's supply curve dictates the amount it will supply. In a monopoly market the

decision about how much to supply is impossible to separate from the demand curve it faces.

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

decreases, and marginal revenue decreases.

The supply curve for the monopolist

does not exist.

A monopolist faces a

downward-sloping demand curve.

If government regulation sets the maximum price for a natural monopoly equal to its marginal cost, then the natural monopolist will

earn economic losses.

If the government regulates the price that a natural monopolist can charge to be equal to the firm's average total cost, the firm will

earn zero profits.

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.

The output effect describes the situation when a monopolist sells more output and, all else equal, total revenue

increases.

A competitive firm

is a price taker, whereas a monopolist is a price maker.

Price discrimination

is an attempt by a monopoly to increases its profit by selling the same good to different customers at different prices.

One problem with regulating a monopolist on the basis of cost is that

it does not provide an incentive for the monopolist to reduce its cost.

Suppose most people regard emeralds, rubies, and sapphires as close substitutes for diamonds. Then DeBeers, a large diamond company, has

less market power than it would otherwise have.

A perfectly competitive firm produces where

marginal cost equals price, while a monopolist produces where price exceeds marginal cost.

A monopoly chooses to supply the market with a quantity of a product that is determined by the intersection of the

marginal revenue and marginal cost curves.

A profit-maximizing monopolist will produce the level of output at which

marginal revenue is equal to marginal cost.

Because a monopolist must lower its price in order to sell another unit of output,

marginal revenue is less than price.

Deadweight loss

measures monopoly inefficiency.

When a single firm can supply a product to an entire market at a lower cost than could two or more firms, the industry is called a

natural monopoly.

Which of the following is not a characteristic of a monopoly?

one buyer

What do economists call the business practice of selling the same good at difference prices to different customers?

price discrimination

When a monopolist reduces the quantity of output it produces and sells, the

price of its output increases.

A monopolist maximizes profits by

producing an output level where marginal revenue equals marginal cost.

Price discrimination is the business practice of

selling the same good at different prices to different customers.

When a monopoly increases its output and sales,

the output effect works to increase total revenue, and the price effect works to decrease total revenue.

​If a monopoly market were to be transformed into a competitive market, the result would be that

​All of the above would be: market output would increase, the market would be efficient once the market reached the competitive output, the deadweight loss from the monopoly would be eliminated