Chapter 13: Monopoly and Antitrust Policy
Z. Monopolistic competition is an industry market structure with
many firms each able to differentiate their product.
Government Failure
occurs when the government becomes the tool of the rent seeker and the allocation of resources is made even less efficient by the intervention of government
Z. Monopolists differ from perfectly competitive firms
on the demand side of the profit equation alone.
Z. In imperfectly competitive markets,
some competition may exist in the markets.
Z. A coffee manufacturer raises the price of its coffee by 10%, and the quantity demanded of its coffee falls by only 12%. This firm has
some market power.
Price Discrimination
the business practice of selling the same good at different prices to different customers
Z. For a monopolist to sell more units of output,
the price must be reduced.
Z. What is the Profit-Maximizing Level of output for a monopolist?
the profit-maximizing level of output for a monopolist is the one at which marginal revenue equals marginal cost: MR=MC.
Z. In a monopoly, the market demand curve is
the same as the demand curve facing the firm.
Network Externalities
the value of a product to a consumer increases with the number of that product being sold or used in the market
Z. When a monopolist sells two units of output its total revenue is $150. When a monopolist sells three units of output its total revenue, is $210. When the monopolist sells three units of output, the price per unit is
$70
Federal Trade Commission
A federal regulatory group created by Congress in 1914 to investigate the structure and behavior of firms engaging in interstate commerce, to determine what constitutes unlawful "unfair" behavior, and to issue cease-and-desist orders to those found in violation of antitrust law.
Pure Monopoly
A market structure in which one firm sells a unique product, into which entry is blocked, in which the single firm has considerable control over product price, and in which nonprice competition may or may not be found.
Z. The demand curve for insulin is most likely represented by
A vertical demand line
Oligopoly
An industry composed of a limited number of large firms
Natural monopoly
An industry that realizes such large economies of scale in producing its product that single-firm production of that good or service is most efficient.
Z. Which of the following is not an example of price discrimination?
Back-to-school sales
Barriers to Entry
Factors that prevent new firms from entering and competing in imperfectly competitive industries.
Monopolistic Competitors
Firms that differentiate their products in industries with many producers and free entry
Z. What is the Marginal Revenue of a monopolist firm?
MR = P + (ΔP/ΔQ)xQ
Z. Do monopolistic industries have supply curves?
No. A monopolist sets both price and quantity, and the amount of output that it supplies depends on its marginal cost curve and the demand curve that it faces. In other words, firms in imperfectly competitive markets have no supply curves.
Perfect Price Discrimination
Occurs when a firm charges the maximum amount that buyers are willing to pay for each unit.
Z. Which of the following statements regarding perfect price discrimination is FALSE?
Perfect price discrimination yields the same market price and output result as perfect competition.
Clayton Act of 1914
Strengthened Sherman Act, outlawed certain anticompetitive practices not prohibited by the Sherman Act, including price discrimination, tying contracts, exclusive dealing, interlocking directorates, and buying the corporate stock of a competitor.
Rent-Seeking Behavior
The actions by persons, firms, or unions to gain special benefits from government at the taxpayers' or someone else's expense.
Deadweight Loss of Monopoly
The social Cost associated with the distortion in consumption from a monopoly price.
Z. Why do price discriminating firms often offer lower prices to children and the elderly?
They have a lower willingness to pay than other consumers.
No-Arbitrage Condition
To effectively price discriminate, firms must prevent customers from reselling.
Z. A monopoly no longer looks at a market price to see what it can charge; it sets the market price. (True/False)
True
Patent
a barrier to entry that grants exclusive use of the patented product or process to the inventor
Z. How does a monopolist firm maximize profits?
a monopolist will maximize profits by expanding output so long as marginal revenue exceeds marginal cost.
Z. In an imperfectly competitive industry,
a single firm has some control over the price of its output.
Z. A monopoly is an industry with
a single firm in which the entry of new firms is blocked.
Z. For a perfectly competitive firm, the marginal revenue curve has ________ point(s) in common with the firm's demand curve.
all
Market Power
an imperfectly competitive firm's ability to raise price without losing all of the quantity demanded for its product
Imperfectly Competitive Industry
an industry in which individual firms have some control over the price of their output
Rule of Reason
before ruling on the legality of certain business practices, a court examines why they were undertaken and what effect they have on market competition
Z. When a monopolist sells two units of output its total revenue is $600. When a monopolist sells three units of output its total revenue is $630. In order to sell three units of output instead of only two, the monopolist must
decrease its price by $90 per unit. 600/2=300 630/3=210 300-210=90 decrease its price by $90 per unit
Z. Monopolies, oligopolies, and monopolistic competitive industries all
have market power.
Z. A monopolist will not produce
in the inelastic portion of its demand curve, where marginal revenue is negative.
