Smartbook 8

_________ laws are designed to encourage competition by breaking up large companies and discouraging mergers between companies in the same industry.

Antitrust, Anti-trust, or Anti trust

_______________ regulation is a method of regulation under which a regulated firm is permitted to charge prices that cover the explicit costs of production plus a markup to cover the opportunity cost of resources provided by the firm's owners

Cost-plus

True or false: A monopolist will always earn an economic profit.

False Reason: A monopolist will only earn an economic profit if price exceeds average total cost at the profit-maximizing level of output.

True or false: Price discrimination always hurts consumers.

False Reason: Both consumer and producer surplus can increase as a result of price discrimination.

When start-up costs are high relative to marginal cost, the production process is likely to exhibit which of the following?

Increasing returns to scale

The profit-maximizing rule for a monopolist is to choose the level of output such that _____.

MR=MC

Which of the following are examples of price discrimination?

Mail-in rebates Discounted airfare for passengers who purchase their tickets 21 days in advance

The profit-maximizing level of output for a monopolist is inefficient because at the profit-maximizing level of output:

P > MC Reason: At a monopolist's profit-maximizing level of output, P>MC, implying that the benefit to consumers of the last unit produced is greater than the cost of producing it.

Which of the following gives the inventors or developers of new products the exclusive right to sell those products for a specified period of time?

Patents

Which of the following is the same for a monopolist and a perfectly competitive firm?

The calculation of marginal cost

True or False? Patents and copyrights are a source of market power.

True

A price setter is

a firm with at least some latitude to set its own price.

Monopolistic competition is a market structure in which

a large number of firms sells products that are close but not perfect substitutes.

Network economies arise when products

become more valuable as more people use them.

Antitrust laws are designed to encourage competition by:

breaking up large companies and discouraging mergers between companies in the same industry

Price discrimination _____ consumer surplus.

can sometimes increase

A perfectly discriminating monopolist

charges each buyer exactly his or her reservation price.

If a firm doubles all of its inputs and output exactly doubles, then the production process exhibits

constant returns to scale.

If all inputs are increased by a fixed proportion, and you observe output increases by that same proportion, then the production process exhibits

constant returns to scale.

____________ regulation is a method of regulation under which a regulated firm is permitted to charge prices that cover the explicit costs of production plus a markup to cover the opportunity cost of resources provided by the firm's owners

cost-plus

A method of regulation under which the regulated firm is permitted to charge prices that cover the explicit costs of production plus a markup to cover the opportunity cost of resources provided by the firm's owners is known as:

cost-plus regulation

For products that have extremely high fixed costs relative to their marginal cost, the average total cost of production will typically _____ as output increases.

decrease

Price _____________ is the practice of charging different buyers different prices for essentially the same product.

discrimination

If a firm has market power, then it faces a(n) ________.

downward sloping demand curve

Select all that apply A firm that has market power:

faces a downward-sloping demand curve. can raise the price of its good without losing all of its sales.

One way that the government might maintain the rustic quality of the experience in a place like Rocky Mountain National Park would be to ______.

grant exclusive concession licenses to a vendor that adheres to certain requirements

When the government issues a license giving one firm the right to produce and sell a product exclusively, it is ______.

granting the firm market power

At a monopolist's profit-maximizing level of output, the benefit to consumers of the last unit produced is _____ the marginal cost of producing it.

greater than Reason: At a monopolist's profit-maximizing level of output P>MC, implying that the benefit to consumers of the last unit produced is greater than the cost of producing it

One advantage of ______ is that it maintains firms' incentives to keep costs low.

having private companies bid for right to operate as natural monopolist

A monopolist's marginal revenue from selling an additional unit of an output

is less than its price.

For a monopolist and a perfectly competitive firm, the calculation of marginal cost

is the same.

A profit-maximizing monopolist will choose the level of output such that _____.

its marginal revenue equals its marginal cost

The additional revenue a monopolist receives from selling an additional unit of output is

less than the price of the product.

If an imperfectly competitive firm raises the price of its product by a small amount, then it will ______.

lose some, but not all, of its customers

A market in which a large number of firms produce slightly differentiated products that are reasonably close substitutes for one another is a(n) _____.

monopolistically competitive market

The more people use a given social media platform like Facebook, the more valuable it becomes. This suggests that _____ are likely to be an important source of market power for Facebook.

network economies

A firm that charges each buyer exactly his or her reservation price is a _____.

perfectly discriminating monopolist

The essential difference between perfectly competitive firms and imperfectly competitive firms is that perfectly competitive firms face _____ demand curves while imperfectly competitive firms face _____ demand curves.

perfectly elastic; downward-sloping

Student discounts and mail-in rebates are examples of ______. Multiple choice question.

price discrimination

The practice of charging different buyers different prices for essentially the same good is known as _____.

price discrimination

A firm with at least some latitude to set its price is a ______.

price setter

One potential problem with state ownership of natural monopolies is that:

private natural monopolies are likely to face stronger incentives to cut costs than state-owned natural monopolies

A market in which there is only one supplier of a unique product with no close substitutes is a(n) _____.

pure monopoly

Prior to November 2011, Pfizer had the exclusive right to sell atorvastatin (brand name, Lipitor), a highly effective drug to treat high cholesterol that has no close substitutes. Prior to November 2011, the market for atorvastatin was an example of

pure monopoly. Reason: A pure monopoly arises when there is only one supplier of a unique product with no close substitutes.

Which of the following most likely exemplifies a pure monopoly?

regional utilities

Monopolists _____ earn an economic profit.

sometimes

One way to deal with natural monopolies is to allow private firms bid for a natural monopolist's market. In this case, the winning firm:

still has a strong incentive to keep costs low Reason: Cost-saving measures will directly translate into increased profits for the winning firm.

The practice by which a seller offers a discount to all buyers who overcome some obstacle is known as

the hurdle method of price discrimination.

A pure monopolist is

the only supplier of a unique product with no close substitutes

The hurdle method of price discrimination refers to ______.

the practice by which a seller offers a discount to all buyers who overcome some obstacle

Compared to private natural monopolies, state-owned natural monopolies are likely to face _____ incentives to cut costs.

weaker

Suppose one firm owns all of the cranberry farms in the world. We can predict that this firm ______.

will have market power

If a single firm controls an input essential to the production of a given product, then that firm

will have market power.