Econ 201 Chapter 12
Which of the following does the monopolist not have? Multiple choice question.
A Supply curve
Which of the following best exemplifies a firm with excess capacity?
A fast-food restaurant where customers never have to wait to place an order.
pure monopoly
A market structure in which one firm sells a unique product, into which entry is blocked, in which the single firm has considerable control over product price, and in which nonprice competition may or may not be found.
Which of the following does the monopolist not have?
A supply curve
Why might a monopolist accept a less-than-maximum per-unit profit?
Additional sales more than compensate for the lower profit per unit.
A monopolist does not achieve productive efficiency because it produces a level of output that does not correspond to the minimum point of the ____________, _______________ cost curve. (Enter only one word per blank.)
Average, Total
What is the term for factors that prohibit firms from entering an industry?
Barriers to entry
When Mary tried to get an appointment with a local dentist she was told that the earliest the doctor could see her was in three weeks. This may have been due to a lack of ______.
excess capacity
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
Price _____________, or charging different prices to different consumers, is widely practiced in the US economy.
Discrimination
The practice of charging different prices to different buyers for a specific product is known as price _____________
Discrimination
What term is used to describe declining average total costs with added firm size?
Economies of scale
True or false: Price discrimination is not practiced very often in the US economy.
False
How does a monopoly generally transfer income?
From consumers to the owners of the monopoly
Which of the following are characteristics of public utilities?
Government owned or regulated Monopolies or near monopolies
X-inefficiency occurs when a firm operates at a cost that is _____________ (higher/lower) than the lowest cost for a particular level of output.
Higher
A major trade-off that occurs in monopolistically competitive industries is that, as product differentiation increases,
excess capacity also increases.
Which of the following are entry barriers created by monopolists?
Increased advertising Price reductions
Why do firms engage in product differentiation if it adds to the firm's costs?
Increased differentiation may increase demand enough to compensate for the added costs.
As an example of price discrimination, airlines charge higher fares to business travelers whose demand for travel is______________ and offer lower, more restricted fares to vacationers and others with more_____________ demand.
Inelastic Elastic
What will happen to a monopolistically competitive firm in the long run?
It will only break even.
Government creates ___________ barriers to entry.
Legal
If producing is preferable to shutting down, a profit-seeking monopolist will produce up to the output at which _______.
MR = MC
Firms with downward-sloping product demand curves are called price _____________
Makers
The change in total revenue associated with a one-unit change in output is called___________ Revenue
Marginal
A(n) ______ is able to maintain an economic profit in the long run because there are no new entrants to increase supply, drive down price, and eliminate economic profit.
Monopoly
Which of the following are conditions necessary for price discrimination?
No resale Monopoly power Market segregation
Which of the following are assumptions made in the model of pure 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. Patents, economies of scale, and resource ownership secure the firm's monopoly.
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.
What is the term used to refer to charging different prices to different buyers of a specific product?
Price discrimination
Which of the following factors is most likely to help a monopolistically competitive firm postpone earning only a normal profit?
Product differentiation
Which of the following represents the most significant benefits to society generated by monopolistically competitive markets?
Product differentiation
In the long run, a monopolistic competitor fails to achieve which of the following?
Productive efficiency Allocative efficiency
A pure monopoly exists when a single firm is the sole producer of a product for which there are no close ___.
Substitutes
If a firm is found guilty of achieving a monopoly through anticompetitive actions, then which of the following may occur?
The firm may be broken into two or more competing firms. The firm may be expressly prohibited from engaging in certain business activities.
Marginal revenue is the change in ______ revenue associated with a single-unit change in output.
Total
The monopolist seeks maximum ____________ profit, not maximum unit profit.
Total
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
Which of the following explains why a pure monopolist is able to maintain an economic profit in the long run?
Which of the following explains why a pure monopolist is able to maintain an economic profit in the long run?
When a firm produces a specific output level at a higher cost than the necessary cost for that level of output, it is called ______.
X-inefficiency
A monopolist will never choose a price-quantity combination where price reductions cause:
a decrease in total revenue
A new production technology for making vitamins is invented by a college professor who decides not to patent it. Thus, it is available for anybody to copy and use. The TC per bottle for production up to 100,000 bottles per day is given in the following table. a. What is ATC for each level of output listed in the table? Enter your answers in the table above. b. Suppose that for each 25,000-bottle-per-day increase in production above 100,000 bottles per day, TC increases by $5,000 (so that, for instance, 125,000 bottles per day would generate total costs of $85,000 and 150,000 bottles per day would generate total costs of $90,000). Are there economies of scale at all output levels? c. Suppose that the price of a bottle of vitamins is $1.33. At that price, the total quantity demanded by consumers is 75,000,000 bottles. How many firms will be in this industry? d. Suppose that, instead, the market quantity demanded at a price of $1.33 is only 75,000. How many firms will be in this industry? e. Review your answers to parts b, c, and d. Does the level of demand determine this industry's market structure? f. Compare your answer to part d of this problem with your answer to part d of problem 3. Do both production technologies show constant returns to scale?
a. ATC = total cost/output b. The last two rows provide the additional cost and output information (you could continue to add rows for additional output). Output From this additional information, we can conclude that there are economies of scale because ATC falls as output increases at all levels. c. Because there are economies of scale at all levels of output, we have a natural monopoly situation, and there will only be one firm. d. Again, because there are economies of scale at all levels of output, we have a natural monopoly situation, and there will only be one firm. e. No, because there are economies of scale at all levels of output, there will only be one firm regardless of demand. f. No, the second technology (this problem) has increasing returns to scale.
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
The government broke up Standard Oil in 1911 due to its breach of ___________ (one word) laws.
antitrust or anti-trust
The monopolist's level of output is not at the minimum point of ______, meaning it will not be productively efficient.
average total cost
When measuring industry concentration, the ____ is the ratio of sales of the four largest firms in an industry relative to total industry sales.
four-firm concentration ratio
______ of essential property is a barrier to entry into an industry.
control
Economies of scale refer to ______ average total costs with added firm size.
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, falling, decreasing, or lower
Price makers are firms with:
downward-sloping demand curves
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
The monopolist wants a price-quantity combination to fall in the _____ section of its demand curve, where a lower price means _____ total revenue.
elastic; greater
______ create(s) legal barriers to entry.
government
The demand curve faced by a monopolistically competitive firm is _____.
highly but not perfectly elastic.
A firm can be expressly prohibited from engaging in certain business activities or can be broken into two or more competing firms when it
is found guilty of monopoly abuse.
When a monopolist charges a higher price than a purely competitive firm would, the monopolist essentially ______.
levies a "private tax" on consumers
In the short run, monopolistically competitive firms maximize profits or minimize losses by producing the output level where
marginal revenue equals marginal cost.
Slashing prices is an example of an entry barrier created by a(n _____________
monopolist or monopoly
A good way to describe______________ (monopolistic/oligopolistic) competition is that it mixes a small amount of monopoly power with a large amount of competition, while ___________ (monopoly/oligopoly) blends a large amount of monopoly power with a small amount of competition through entry and considerable rivalry among firms.
monopolistic oligopoly or oligopolistic
Two types of market models that closely approximate many markets in the real world are
monopolistic competition and oligopoly.
Patents, economies of scale, and resource ownership are all assumptions of the pure _______________ model.
monopoly or monopolist
Monopolistically competitive firms to engage in ______ competition by means of product differentiation and advertising, which makes the market situation complex.
nonprice
The goal of advertising a product to differentiate it from competitor's products so that price is less of a factor when a consumer makes a purchase is considered ______ competition.
nonprice
In long-run equilibrium, monopolistically competitive firms will show a(n) _____.
normal profit
In general, as shown in the figure, a fair return price will lead to ______ and a socially optimal price will lead to ______.
normal profit; economic loss
Productive efficiency in monopolistically competitive markets does not occur in the long run because firms set the price
on the demand curve where MR=MC to maximize economic profit, making output less than optimal from society's perspective.
The strongest barriers to entry effectively block all ______.
potential competition
Market segregation must exist in order for a monopolist to ______.
price discriminate
Baseball ticket sellers charge a different price for adults and children. Ballpark concession stands charge the same prices for products sold to any customer. The baseball ticket sellers are providing a successful example of
price discrimination.
The equality of price and minimum average total cost yields ____________ efficiency; the equality of price and marginal cost yields ______________ efficiency. (Enter one word in each blank.)
productive allocative
When a firm's price is equal to its minimum average total cost of producing a product, ___ exists.
productive efficiency
_____________ utilities are government owned or regulated.
public
Which of the following exists when a single firm is the sole producer of a product for which there are no close substitutes?
pure monopoly
Entry to and exit from monopolistically competitive industries is ______.
relatively easy
The four-firm concentration ratio, expressed as a percentage, is the ratio of the total industry _____________ of the four largest firms in an industry relative to total industry sales.
sales, output, or production
If a monopolistically competitive firm is producing where its marginal revenue is less than its marginal cost, then the firm
should produce less output to increase profits or reduce losses.
Two solutions to the economic losses caused by socially optimal pricing are providing public ______________ and condoning price discrimination.
subsidies or subsidy
In order for a monopolistically competitive firm to maximize profits, it must juggle which of the following factors?
the variety of product the selling price of the product the level of advertising
A monopolist does not have a supply curve because:
there is no single, unique price associated with each level of output it does not equate price with marginal cost
