Microeconomics Chapter 12
Natural market power is created by ___________, and arises due to ____________
market forces; economies of scale.
Which of the following is a key difference between perfect competition and monopoly?
In perfect competition, no one firm can influence price, but with monopoly, a single seller sets the price.
Why is city drinking water better off as a natural monopoly?
Industries like city drinking water experience economies of scale since they have high fixed costs. Thus, it is cheaper to have a single firm provide a larger quantity.
what must exist for a firm to engage in price discrimination?
The firm must be able to identify and separate its buyers into different classes, and the lowminus−price buyers cannot resell the product to the highminus−price buyers.
An example of an industry or service that is a natural monopoly is ____________.
a natural gas pipeline
Most movie theatres charge different prices to different groups of customers for movie admission but not on movie popcorn. Which of the following is a reason for this?
because it is easier to limit resale in movie admissions but not in popcorn
Which of the following is not one of the sources of natural market power? A. Having individual expertise in a field. B. Controlling a key resource. Your answer is not correct. C. Owning a firm in a small community. D. The presence of economies of scale.
c
A firm that can effectively price discriminate will charge a higher price to
customers who have the more inelastic demand for the product.
profits=(p-atc)xq
equation that calculates economic profits for a monopoly
Compared to a perfectly competitive market, the price in a monopoly market is lower/higher and quantity is lower/higher
higher lower
Suppose you are an "all-knowing" government planner. Your goal is to regulate a monopolist's price and quantity in order to maximize social welfare but still allow the monopolist to produce. To accomplish your goal, you would have the monopoly produce where ____________. (Assume costs are such that the firm would not incur a loss)
marginal cost equals demand, and you would price the good at marginal cost.
Compared to a monopoly that does not price discriminate, a monopolist who engages in perfect price discrimination will produce more/less output and have no/alot deadweight loss.
more no
in perfectly competitive markets marginal rev=
price
Market power relates to the ability of sellers to affect __________, and arises because of ____________.
prices; barriers to entry.
Which of the following are properties of a monopoly?
there are high barriers to entry, price-maker, there is only one seller
In a competitive market, a supply curve shows all the price and quantity combinations at which firms will produce. Does a monopoly face a similar supply curve?
No, a monopoly is a price-maker and its production decisions are determined by its downward-sloping demand curve.
With perfect price discrimination, a monopoly can extract the ________ price each customer is willing to pay and thereby obtain the entire ________ surplus.
maximum; consumer
Calling long distance is often more expensive on weekdays between 8 am and 5 pm than in the evening hours. Why is this the case?
Businesses who must call suppliers or customers during business hours have few alternatives and therefore have an inelastic demand during the workday compared to after-work hours.
Both competitive firms and monopolies produce at the level where marginal cost equals marginal revenue. Then, other things remaining the same, why is price lower in a competitive market than in a monopoly?
Competitive markets face perfectly elastic demand and marginal revenue, while monopolies face downward-sloping demand and marginal revenue.
When a firm exercises its monopoly power, the cost to society is the
deadweight loss
Social surplus increases because ____________
deadweight loss is eliminated
f the monopolist loses its monopoly power, price ____________consumer surplus ____________ producer surplus ____________ and social surplus ____________
decreases increases decreases increases
When a firm exercises its monopoly power, social surplus is lower or higher than it is if the market were perfectly competitive.
lower
Compared to a perfectly competitive market, consumer surplus is lower/higher producer surplus is lower/higher and deadweight loss is lower/higher
lower higher higher
Suppose the government grants an individual or company the sole right to produce and sell a good or service.In this case, the government is granting a
patent
network externalities?
they occur when a product's value increases as more consumers begin to use it.
Legal market power is created by ___________, and arises due to ____________.
the government; copyrights
