ECON: Ch.12

A price-discriminating monopolist will follow a system where: A)Buyers with inelastic demand are charged higher prices than buyers with elastic demand B)The price of the product is held the same even if the demand changes C)All buyers are charged the same price regardless of their elasticity of demand D)Buyers with inelastic demand are charged lower prices than buyers with elastic demand

A

At the profit-maximizing level of output for a monopolist: A)Price is greater than marginal cost B)Average total cost equals marginal cost C)Total revenue is greater than total cost DPrice is greater than average revenue

A

Many people believe that monopolies charge any price they want to without affecting sales. Instead, the output level for a profit-maximizing monopoly is determined by: A)Marginal cost = marginal revenue B)Marginal revenue = average cost C)Average total cost = average revenue D)Marginal cost = average revenue

A

One major barrier to entry under pure monopoly arises from: A)Ownership of essential resources B)The price taking ability of the firm C)The availability of close substitutes for a product D)Diseconomies of scale

A

Pure monopolists: A)Maximize MR B)Operate where P > MC C)Are price takers D)Face demand curves that are perfectly inelastic

B

The area labeled "Economic profit" can be found by multiplying the difference between P and ATC by quantity. It also can be found by: A)Dividing profit per unit by quantity B)Subtracting total cost from total revenue C)Multiplying the coefficient of demand elasticity by quantity D)Multiplying the difference between P and MC by quantity

B

The factors that prohibit firms from entering an industry

Barriers to entry

The monopolist's marginal-revenue curve lies ____ its demand curve

Below

At this monopolist's profit-maximizing output: A)Price equals marginal revenue. B)Price equals marginal cost. C)Price exceeds marginal cost. D)Profit per unit is maximized

C

To practice long-run price discrimination, a monopolist must: A)Be a natural monopoly B)Permit the resale of the product by the original buyers C)Be able to separate buyers into different markets with different price elasticities D)Charge one price to all buyers

C

With a fixed downsloping demand curve, the pure monopolist can increase sales only by ____

Charging a lower price

A pure monopoly firm will never charge a price in the inelastic range of its demand curve because lowering price to get into this region will: A)Increase total revenue, decrease total cost, and decrease profit B)Decrease total revenue, total cost, and profit C)Increase total revenue, increase total cost, and decrease profit D)Decrease total revenue, increase total cost, and decrease profit

D

Price discrimination for concessions at ball parks is not applied to adults and children because: A)Adults' demand for food is elastic and children's demand for food is inelastic B)Children's demand for food is elastic and adults' demand for food is inelastic C)There can be exchange of the product from adults, who buy it at a lower price, to children D)There can be exchange of the product from children, who buy it at a lower price, to adults

D

The MR curve lies below the demand curve in this figure because the: A)Demand curve is linear (a straight line) B)Demand curve is highly inelastic throughout its full length C)Demand curve is highly elastic throughout its full length D)Gain in revenue from an extra unit of output is less than the price charged for that unit of output

D

This pure monopolist: A)Charges the highest price that it could achieve B)Earns only a normal profit in the long run C)Restricts output to create an insurmountable entry barrier D)Restricts output to increase its price and total economic profit

D

When its price is set to achieve the most efficient allocation of resources (P = MC), the regulated monopoly is likely to suffer losses

Dilemma of regulation

Because market demand is not perfectly elastic, the monopolist's demand curve is ____

Downsloping

For natural monopolies subject to rate regulation, the price that would allow the regulated monopoly to earn a normal profit

Fair-return price

True or false? A monopolist always seeks the highest price

False

As with any monopolist, a natural monopolist may, instead, set its price ____ and obtain substantial economic profit

Far above ATC

Monopoly price can be reduced and output increased through ____

Government regulation

In general, a monopoly transfers ____ from consumers to the owners of the monopoly

Income

Because the pure monopolist is the industry, its demand curve ____ the market demand

Is

Government may also limit entry into an industry or occupation through ____

Licensing

The monopolist seeks maximum total profit, not ____

Maximum unit profit

Price discrimination is possible when the following conditions are met:

Monopoly power, market segregation, no resale

Monopolistic firms tend ____ toward X-inefficiency than competitive producers do

More

A monopoly firm is referred to as a ____ if the market demand curve intersects the long-run ATC curve at any point where average total costs are declining

Natural monopoly

The value of a product to each user, including existing users, increases as the total number of users rises

Network effects

Another name for simultaneous consumption is ____

Nonrivalrous consumption

The exclusive right of an inventor to use, or to allow another to use, her or his invention

Patent

The socially optimal price suffers from a potentially fatal problem:

Pr may be so low that average total costs are not covered

The practice of selling a specific product at more than one price when the price differences are not justified by cost differences

Price discrimination

Economists summarize this fact by saying that firms with downsloping demand curves are ____

Price makers

____ can simultaneously reduce price, increase output, and reduce the economic profit of monopolies

Price regulation

Locally regulated monopolies are commonly called ____

Public utilities

When a single firm is the sole producer of a product for which there are no close substitutes

Pure monopoly

Any activity designed to transfer income or wealth to a particular firm or resource supplier at someone else's, or even society's, expense

Rent-seeking behavior

____ is what leads to most patentable inventions and products

Research and development (R&D)

A product's ability to satisfy a large number of consumers at the same time

Simultaneous consumption

The main characteristics of pure monopoly:

Single seller, no close substitutes, price maker, blocked entry, nonprice competition

The regulated price Pr that achieves allocative efficiency

Socially optimal price

True or false? Monopoly yields neither productive nor allocative efficiency

True

True or false? The pure monopolist has no supply curve

True

Monopolists can charge higher-than-competitive prices that result in an ____ of resources to the monopolized product

Underallocation

The general view of economists is that a pure monopolist ____ technologically progressive

Will not be

When a firm produces output at a higher cost than is necessary to produce it

X-inefficiency