Monopoly Chp 10 MICRO + homework

When it comes to bringing new ideas to the marketplace: a. new forms a venture capital have allowed smaller dot com companies to innovate. b. the common belief is that it takes a large firm to have the money to bring it to market. c. most fail because it is so cheap and easy to bring them to the market the market is flooded with new ideas. d. government action is required to bring a new idea to the marketplace against the established producers.

a, b

It is difficult for new firms to enter a monopoly because: a. of economies of being established. b. of the weakening of patent protections. c. of economies of platform. d. of the control over a key resource. e. it requires scale for innovation. f. of diseconomies of scale.

a, c, d, e

Examples of "bigness" not being a bad thing include: a. the existence of economies of scale. b. difficulty in making changes in large bureaucracies so changes must be well vetted. c. a natural monopoly lowering prices. d. less confusion among consumers as to the appropriate supplier to use. e. a company growing large to constant innovations.

a, c, e

Barriers to entry into an industry include: a. control over a key resource. b. the desire to try new things. c. lack of innovation in large corporations. d. economies of scale. e. elimination of the old standards. f. legal barriers.

a, d, f,

Examples of the control over a key resource being a barrier to entry include: a. The Metropolitan Opera having labor under contract. c. the city of New York limits the number of taxi drivers. d. since we are already familiar with Windows, Microsoft controls the computer market. e. The International Nickel Company of Canada controlling 90% of nickel reserves.

a, e

Examples of barriers to entry?

absolute cost advantages, control of an essential raw material

Barnes and Noble is much larger than your campus bookstore: -and because they both exist, neither can be a monopoly. -so Barnes and Noble is a national monopoly, while the campus bookstore is a local one. -however traditional market structures do not apply to textbooks since they represent a "forced" demand. -but the campus bookstore is more likely to be a monopoly.

but the campus bookstore is more likely to be a monopoly.

Suppose it takes $1 million to wire the city for electricity for a city of 1 million people. With one firm, the average fixed costs would be _____. If there were four identical firms (each needing their own wires), the average fixed costs will be ______. a. $4 per unit; $4 per unit b. $1 per unit; $16 per unit c. $1 per unit; $4 per unit d. $4 per unit; $16 per unit

c

In order for economies of scale to be a barrier to entry, there must be: a. a reasonable alternative (but at a much higher price). b. government assistance to get established. c. the wherewithal to set up. d. a sufficient demand for the product.

c, d

On a given table, if output is 1 unit, marginal cost

cannot be calculated with knowing the fixed cost

Natural monopolies are: cheaper. more convenient. more efficient. not truly monopolies

cheaper. more convenient. more efficient.

Because DeBeers owned 90% of the diamond mines, it was difficult for others to compete. This is an example of

control over an essential resource.

Licensing, franchises, and patents are all examples of: a. required scale for innovation. b. economies of platform. c. control of a key input. d. legal barriers to entry.

d

The inefficiency caused by bigness has become so acute among giant firms often referred to as "Corporate_______

dinosaurs

A major drawback of "bigness" is: a resistance to new ideas. diseconomies of scale. no incentives for new research. inefficiency.

diseconomies of scale and inefficiency.

economies of scale

dominant firm may enjoy cost advantages due to realization of scale economies in production, distribution, capital raising, or sales promotion

It is difficult to take business for a firm that has been operating since before you were born due to: a. market discriminations. b. economies of scale. c. the require scale for innovation. d. economies of being established

economies of being established

The ABC, CBS, and NBC television networks were founded in the 1940s, we did not get another broadcast network until 1995 because of: economies of scale. economies of platform. legal barrier (government licensing). the required scale for innovation.

economies of platform.

Natural monopolies can take advantage of _____ ___ _____ and deliver services much more cheaply than a multitude of competing firms.

economies of scale

With monopoly, increasing quantities cause the price to fall on________ units making marginal revenue fall_______ than demand.

every, faster

American cars have greatly improved in quality over the last 20 years because: they have finally became big enough to gain economies of scale. foreign competition has challenged their "bigness." federal regulations imposed as a result of accepting government bailouts. computerization has reduced their diseconomies of scale.

foreign competition has challenged their "bigness."

A company can be very big either because they are very______ or that they are very______.

good, bad

The________ works to weaken monopolies by regulation and antitrust

government

Barrier to entry tends to erode over time. According to the author of the textbook, the barrier we do not want to erode is: government franchise. economies of scale. patent protection. economies of platform.

government franchise

The most important legal barrier to entry is: patents and copyrights. government franchise. licensing agreements. trademarks.

government franchise

A solution to dealing with natural; monopolies is: subsidization of competitors. government ownership. increased competition. government regulation.

government ownership and government regulation

Generally, the government prefers to deal with natural monopolies by: government regulation. public pressure on the firm. government ownership. promoting innovations that will break the monopoly.

government regulation

When the government determines the price that can be charged for a natural monopoly, it is known as: industrial socialism. government ownership. government control. government regulation

government regulation.

A monopoly would produce at a quantity that is: less than with long-run perfect competition. greater than with long-run perfect competition. the same as with long-run competition.

greater than with long-run perfect competition.

With imperfect competition since the demand is not horizontal

marginal revenue and demand are the same

With imperfect competition since the demand is not horizontal: -the marginal revenue is the slope of the demand curve. -marginal revenue is still horizontal but it does not match demand. -marginal revenue and demand are the same. -the marginal revenue is the equilibrium market price.

marginal revenue and demand are the same

A monopolist faces the ___ demand curve.

market

The development of substitute products is how the________ work to weaken monopolies

markets

All market structure that are not perfect competition are

monopolies

Local gas and electric companies, the phone company, and local cable TV companies are all examples of _____

monopolies

A ___ is a firm that produces all of the output in an industry.

monopoly

Since the Toyota Camry is a reasonably close substitute to a Chevrolet Silverado, Chevrolet cannot be a________

monopoly

If there are economies of scale for the entire range of production, a monopoly may be: more efficient than several competing firms. less efficient than several competing firms. as efficient as several competing firms.

more efficient than several competing firms

Government regulation and government ownership are two ways that we can prevent natural monopolies from abusing their power. preventing natural monopolies from occurring. repairing the damage caused by natural monopolies. forcing natural monopolies into the same behavior as traditional monopolies

natural monopolies from abusing their power.

An industry in which a single firm can provide cheaper service than could several firms is a: growth monopoly. cost-protected industry. government franchise. natural monopoly.

natural monopoly

For a monopoly, the distinction between the long run and the short run is: -not important. -just as important as it is in perfect competition. -important but not as important as in perfect competition. -more important than in perfect competition.

not important

Google has a 88% share in the market for search advertising because: of the economies of being established. of economies of scale. it requires scale for innovation. of economies of platform

of the economies of being established

In a monopoly there is no _____

one firm producing all of the output. meaning no competition or close substitutes

The monopoly firm is a ______ ______. It faces the market (downward sloping) demand curve. To sell more goods, therefore, the monopolist must reduce price.

price maker

If a monopoly is experiencing losses, they are in the: -short run. -we cannot tell if they are in the long or short run since it is a monopoly. -long run.

short run

A graph where the average total cost curve runs through marginal cost but is above the demand curve and marginal revenue curve. Demand and marginal revenue run through the marginal costs curve only and is below average total costs. The firm represented here is in: -long-run monopoly. -short-run monopoly. -short-run competition. -long-run competition.

short-run monopoly

In general, the impact of patents: a. speeds up the flow of new products to the consumers. b. keeps innovative products too expensive for the general public. c. provides a lifetime of income to the patent holder. d. stifles innovation since new research is kept secret.

speeds up the flow of new products to the consumers.

According to University of Houston economic professor Dietrich Vollrath, great market power_____ innovation.

strifles

A natural monopoly is said to be _______ if unregulated market forces would result in the survival of only _____ firm. A natural monopoly is _____ if the market demand curve touches the _____-run average cost curve in the region of ______ returns to scale

substainable, one. sustainable, long, increasing

Examples of government ownership include: Waste Corporation of America. the Tennessee Valley Authority. the U.S. Postal Service. Amtrak

the Tennessee Valley Authority. the U.S. Postal Service. Amtrak

When it comes to a monopoly size, it is important relative to: -the market. -similar producers. -other firms in the industry. -the economy.

the market

Despite the fact that there are more than 700,000 doctors nationwide, a small town doctor may be a monopoly if

there are no other doctors within the vicinity.

How is total profit calculated?

(price - ATC) x Output

What are the 2 deinitions of Barriers to Entry?

1. factors that impede entry into a market space 2. advantages enjoyed by established sellers vis-a-vis potential entrants

What are these an example of? Control of wholesale diamond distribution by DeBeers Control of advantageous retail shelf space by Proctor and Gamble, Kellogs

Barriers due to control of wholesale, retail distribution systems

What are these an example of? Xerox's patent on xerography Polaroid's patent on Instamatic photography

Barriers due to patents, copyrights, trademarks, and other legal barriers, exclusive franchises

Examples of monopoly include: the most important college in your state. Microsoft. DeBeers diamonds. the local electric company.

DeBeers diamonds. the local electric company.

The whole idea of legal barriers to entry is to: allow only one firm to do business. reward political donors. protect consumers

allow only one firm to do business

The distance QT (or RS) represents: -average total costs. -average profits. -total cost of production. -total profits.

average profits

The availability of close substitutes determines if a firm is a monopoly, _______ get to decide whether are not two goods are close substitutes.

buyers

When maximizing profits, the monopolists price will be

greater than marginal revenue.

Rapidly changing technology will: redefine the entire concept of monopoly and competition. strengthen the current standards so there is uncertainty about which new technology will prevail. make it easier for new monopolies but difficult for them to last. make it difficult for new monopolies to form.

make it difficult for new monopolies to form.

Economic arguments against "bigness" include arge economic profits in some industries. no incentives for research and development. higher prices and poorer services. it forces economies to embrace free and open trade. no incentive to produce efficiently.

no incentives for research and development. higher prices and poorer services. no incentive to produce efficiently.

The monopolist may engage in _____ _____

price discrimination

To sell additional units, the single seller must ____ price. Therefore, marginal revenue ( MR = TR/ Q) is ____ as the quantitiy solf increases.

reduce, falling

The rectangle QRST represents

total profits

What is Akansas's Public Service Commision duty?

•The Commission is charged with the duty of ensuring that public utilities provide safe, adequate and reliable utility service at just and reasonable rates. By law such rates must allow public utilities the opportunity to recover the prudently incurred cost of providing such service and a fair rate of return on capital invested by the utilities for the purpose of providing such service. The Commission is also charged with the duty of ensuring that customers are not charged excessive rates for such service." APSC regulates rates charged by electric, gas, and water utilties, local telephone service and pipeline transporation companies.

When comparing perfect competition and monopoly: -both would charge similar prices. -monopoly has more efficient production. -P = MC for monopoly. -both operate when MR = MC. -the perfect competitor would produce more.

-both operate when MR = MC. -the perfect competitor would produce more.

With imperfect competition the firms: -have a vertical line for demand. -will need to lower their prices to sell more. -have demand that is perfectly elastic. -demand curve slopes downward to the right.

-will need to lower their prices to sell more. -demand curve slopes downward to the right.

What are examples of strategic barriers?

1. Alcoa's restrictive covenants with hydroelectric suppliers. 2. Standard Oil's "secret rebate" policy with the railroad companies. 3. "Lease-only" policy of IBM, United Shoe Machinery, International Salt 4. IBM's continual design modification was designed to forestall entry of firms such as Calcomp that marketed plug-compatible peripherals—e.g.,tapes and line printers. 5. Microsoft charges PC makers a royalty for every computer shipped—regardless of whether the machine has a Windows operating system installed. 6. Microsoft requires that Explorer icon appear on desktop in initial boot up sequence.

What are the two ways to prevent public utilities from charging outragious prices?

1. Government regulation: Rate-of-return regulation by public commissions 2. Government ownership

Structural feactures of monoply

1. single seller 2. no close substitues 3. entry is blockaded Ex: your local electric unit, DeBeers, Microsoft, Facebook

Economies of scale protect monopolies from competition because they can produce at a low

ATC

Monopolies tend to be inefficient because they do not produce at the minimum point on their _____. This prevents resources from being allocated in the most efficient manner.

ATC

What are these an example of? Cigarettes, pain relievers, designer jeans, athletic wear, batteries, soft drinks

Barriers due to product differentiation/brand power

True or false: Because they control the market, it is impossible for a monopoly to have losses.

False

______ ________ of natural monopolies is considered a last resort, when private industry is unable or unwilling to do the job.

Government ownership

In the high-tech world, the last three decades have been described as "A Tale of Two Monopolies", _______ and _______.

Microsoft, Apple

What additional information would allow you to calculate the marginal cost when output is 1 unit?

The variable costs for 1 unit and the fixed costs

True or false: While an industry may be competitive national it may also be a monopoly locally.

True

The general thrust of public policy in the area of natural monopoly is to: a. allow private enterprises to do the job but regulate prices and take over as a last resort. b. allow private enterprises to exist as regulated monopolies only for the services they no longer wish to provide. c. allow private enterprises to fail so that the government can take over the industry. d. allow private enterprises to operate but regulate prices and take over if the profits are great enough to provide significant governmental revenue.

allow private enterprises to do the job but regulate prices and take over as a last resort.

The Tennessee Valley Authority is often used as an example of the unfair competition between the government and the market. the need for government ownership even if it is far more costly is some circumstances. the failure of governmental ownership. an efficient government-owned producer.

an efficient government-owned producer.

An advantage of being established for suppliers to retail store such as grocery stores is: a. consumers dislike trying new products or ideas. b. they already have the self-space and it is difficult to take it back once given. c. they have legally binding contracts to have their product sold in the store. d. retail customers tend to make poor decisions when the status quo is altered.

b

Monopolies can be justified because of: a. protecting jobs from powerful competition. b. economies of scale. c. national security. d. natural monopoly.

b, d

Monopoly power is limited by the fact that a. monopoly profits are taxed more heavily than normal profits. b. barriers to entry can be overcome. c. the efficiency of competitive firms will eventually break down monopolies. d. consumers are willing to pay higher prices to support local business.

barriers to entry can be overcome.

What are these an example of? 1. Alcoa had access to low cost hydroelectric power in Pacific NW 2. Weyerhauser procured extraction rights to tracts of Douglas fir in 1901 3. International petroleum majors (Texaco, SOCAL, BP, et al) formed a pipeline consortium in California.

barriers to entry that takes control of an essential raw material for absolute cost advantages

Patents are essential to pharmaceutical companies because they cost hundreds of millions of dollars to do research. so they can continue to sell old drugs to the poor for decades. because if effective new drugs are released too quickly, they will "cure" the market. to ensure research proceeds at a safe pace and new drugs are adequately tested.

because they cost hundreds of millions of dollars to do research.

The monopolist earns a profit if for some range of output ATC lies ___ the D curve.

below

In the case of ______ _____, either there are legal restrictions on entry (ex: exclusive franchises or patents) or there is simply no money to be made by entering.

blockaded entry

If costs are too ___ relative to the price, the monopolist can ___ money.

high, lose

The average total cost for a monopoly will be: -lower than with long-run perfect competition. -the same as with long-run competition. -higher than with long-run perfect competition.

higher than with long-run perfect competition

The snack stand at your local movie theater is a legal monopoly, not a natural monopoly. is a form a natural monopoly. is not a natural monopoly since cost savings are not passed to the buyers. is not natural monopoly since you can get snacks elsewhere after the movie

is a form a natural monopoly.

With imperfect competition, marginal revenue

is not related the same as price

If a monopolist is earning profits: -there cannot be any fixed cost thus it is the long run. -new firms will enter the industry reducing the total profits. -profits only exist in the short run, so it must be operating in the short run. -it doesn't matter if it is the short run or the long run.

it doesn't matter if it is the short run or the long run.

People like to deal with established brands because: a brand name may become synonymous with a product so people do not recognize potential competitors. it is difficult to trust a new supplier when you have dealt with the old one for some time. there is a long-standing relationship. American's fear change.

it is difficult to trust a new supplier when you have dealt with the old one for some time and there is a long-standing relationship.

While individuals come up with great idea, it typically takes: the aid of governmental agencies to make it work. a different set of skill to market them. time to overcome the economies of being established. large firms to bring them to market.

large firms to bring them to market

The best example of a natural monopoly is Multiple choice question: local utilities. Cuban cigars. Florida Oranges. Direct TV.

local utilities

An example of a government franchise would most likely be: cell phone service. toll roads. local utilities. long distance service.

local utilities.

Because the monopolist has no rivals, there is no distinction between the_____ run and the ____run.

long, short

Production will be more efficient in: short-run perfect competition. long-run monopoly. long-run perfect competition. short-run monopoly.

long-run perfect competition.

The goals of government regulation would be to force zero profits. lower prices. claim the profits. increase output.

lower prices and increase output.

When a seller lowers the price of a product to sell an additional unit, they lower the price on all units causing the marginal revenue

to fall faster than demand

True or false: The 1996 Telecommunications Act is shifting local phone companies away from natural monopolies.

true