Microeconomics Chapter 13

Explain why the marginal revenue curve facing a competitive firm differs from the marginal revenue curve facing a monopolist. Unlike for perfectly competitive firms, whose marginal revenue curves are the same as their individual demand curves, a monopolist's marginal revenue curve differs from its demand curve because. A. a monopoly must lower the price on all units to sell one more unit of output. B. the demand curve for a monopoly has half the slope of the market demand curve. C. a monopoly can sell all the output it wants without having any impact on market price. D. a monopoly has no market power. E. a monopoly's demand curve is upward-sloping.

A. a monopoly must lower the price on all units to sell one more unit of output.

For a monopoly, marginal revenue A. is less than price, because a monopolist must lower its price in oder to sell more. B. is more than price, because a monopolist cannot control price. C. is more than price, because a monopolist controls price. D. is less than price, because a monopolist can increase sales without reducing price. E. is less than price, because a monopolist can increase both sales and price at the same time.

A. is less than price, because a monopolist must lower its price in oder to sell more. In order to sell more, a monopoly must lower its price on all the units it sells. For a monopoly, marginal revenue is less than the price because a monopolist must lower its price in order to sell more. The demand curve for a monopolist is elastic. Higher the price, lower will be the demand. This will in turn lower the marginal revenue earned from the additional products, hence, MR is less than the price under monopoly.

One of the major characteristics of pure monopoly is A. there are only a few firms in the industry. B. there are severe barriers to entering the industry. C. the total amount produced by the industry is large. D. similar products are made by other industries.

B. there are severe barriers to entering the industry. The presence of severe barriers that keep other firms out of the industry is an important characteristic of monopoly.

A natural monopoly exists when A. a firm is able to make long-run profits without inducing entry by other firms. B. a firm's demand curve is downward sloping. C. a firm's long-run average cost is downward sloping at the point where it intersects the market demand curve. D. there is pure monopoly and the government grants an exclusive license to the firm.

C. a firm's long-run average cost is downward sloping at the point where it intersects the market demand curve. A natural monopoly usually arises when there are large economies of scale relative to the industry's demand such that the declining long-run average cost curve intersects the market demand curve.

A monopoly is an industry with A. many firms each able to differentiate their product. B. a small number of firms each large enough to impact the market price of its output. C. a single firm in which the entry of new firms is blocked. D. many firms each too small to impact the market price of its output.

C. a single firm in which the entry of new firms is blocked.

In order to maximize its profit, a monopolist A. uses the demand curve to choose price but not to choose output. B. first decides what price to charge and then decides the output quantity. C. decides price and output simultaneously. D. first decides the output quantity and then decides what price to charge. E. uses the demand curve to choose output but not to choose price.

C. decides price and output simultaneously. The demand curve tells a monopolist which price-quantity combinations are possible. It cannot pick a combination that is not on the demand curve. So choosing a point on the curve means simultaneously choosing both price and quantity.

An important distinction between perfect competition and monopoly is that in A. perfect competition there is no distinction between the firm and the industry. B. monopoly the firm produces less than the total quantity supplied. C. monopoly the firm faces the market demand curve. D. perfect competition the firm is the industry.

C. monopoly the firm faces the market demand curve.

For a monopolist to sell more units of output, A. the price must be increased. B. demand must become more elastic. C. the price must be reduced. D. the other competing firms must sell fewer units.

C. the price must be reduced.

One of the major characteristics of pure monopoly is A. similar products are made by other industries. B. there are only a few firms in the industry. C. there is only one firm in the industry. D. there are no major barriers to entering the industry.

C. there is only one firm in the industry. Having only one firm is the major characteristic of monopoly.

In a monopolistic industry there is(are) ___ firm(s) and ___. A. many; entry of new firms i blocked B. many; free entry of new firms C. a single; free entry of new firms D. a single; entry of new firms is blocked

D. a single; entry of new firms is blocked

Do you agree or disagree with each of the following statements? Explain your reasoning. For a monopoly, price is equal to marginal revenue because a monopoly has the power to control price. This statement is A. incorrect because price always equals marginal revenue regardless of market power. B. incorrect because price instead is set equal to marginal cost. C. incorrect because price equals marginal revenue due to demand constraints. D. incorrect because price is greater than marginal revenue. E. correct. Because a monopoly is the only firm in an industry, it can charge virtually any price for its product. The statement is A. incorrect because a monopoly is not necessarily the only firm in an industry. B. incorrect because a monopoly is constrained by network effects. C. incorrect because new firms may enter a monopoly's industry. D. incorrect because a monopoly is constrained by consumer demand. E. correct. It is always true that when demand elasticity is equal to -1, marginal revenue is equal to 0. This is A. incorrect because when demand elasticity is equal to -1, total revenue is equal to 0. B. incorrect because when demand elasticity is equal to -1, marginal revenue is at its maximum. C. incorrect because when demand elasticity is equal to -1, marginal revenue is positive. D. incorrect because when demand elasticity is equal to -1, marginal revenue increases. E. correct.

D. incorrect because price is greater than marginal revenue. D. incorrect because a monopoly is constrained by consumer demand. E. correct.

An oligopoly is an industry market structure with A. a small number of firms each large enough to impact the market price of its output. B. many firms each able to differentiate their product. C. a single firm in which the entry of new firms is blocked. D. many firms each too small to impact the market price.

A. a small number of firms each large enough to impact the market price of its output.

Monopolies, oligopolies, and monopolistic competitive industries all A. have market power. B. are completely unconstrained in their pricing. C. raise price and quantity over what would occur in perfect competition in order to maximize their profits. D. earn positive profits in the long run.

A. have market power.

The term "rent seeking" refers to A. a coalition of tenants who acts together to reduce the rents they pay. B. any actions taken to protect positive profits. C. efforts to acquire ownership of real estate which will generate rental income. D. an organization of landlords who jointly raise the rents they charge.

B. any actions taken to protect positive profits. As it is currently used, the term "rent seeking" has no particular connection to the rent paid for the use of a house or apartment.

Monopolistic competition is an industry market structure with A. many firms each able to differentiate their product. B. a single firm in which the entry of new firms is blocked. C. a small number of firms each large enough to impact the market price of its output. D. many firms each too small to impact the market price of its output.

A. many firms each able to differentiate their product.

Market power refers to a firm's ability to A. raise price without losing all sales of its product. B. charge any price it likes. C. sell any amount of output it desires at the market-determined price. D. monopolize a market completely.

A. raise price without losing all sales of its product.