Chapter 15 macro review

If the government regulates the price that a natural monopolist can charge to be equal to the firm's marginal cost, the firm will

earn negative profits, causing the firm to exit the industry.

Perfect price discrimination

increases profits to the firm. increases total surplus. decreases consumer surplus.

When there are economies of scale over the relevant range of output for a monopoly, the monopoly

is a natural monopoly.

Exclusive ownership of a key resource

is a potential but rare cause of a monopoly.

A competitive firm

is a price taker, whereas a monopolist is a price maker.

For a firm to price discriminate,

it must have some market power. Correct

For a monopolist, marginal revenue is

less than price, whereas marginal revenue is equal to price for a perfectly competitive firm.

Private ownership of a monopoly may benefit society because the monopoly will have an incentive to

lower its costs to earn a higher profit.

Price discrimination requires the firm to

separate customers according to their willingnesses to pay.

Price discrimination

the business practice of selling the same good at different prices to different customers

A government-created monopoly arises when

the government gives a firm the exclusive right to sell some good or service.

One problem with government operation of monopolies is that

the government typically has little incentive to reduce costs.

When a monopoly increases its output and sales,

the output effect works to increase total revenue, and the price effect works to decrease total revenue.

Many movie theaters allow discount tickets to be sold to senior citizens because

the theaters are profit maximizers.

A natural monopoly arises when

there are economies of scale over the relevant range of output.

Monopoly pricing prevents some mutually beneficial trades from taking place. These unrealized, mutually beneficial trades are

a deadweight loss to society.

When we compare economic welfare in a monopoly market to a competitive market, the profits earned by the monopolist represent

a transfer of benefits from the consumer to the producer.

The fundamental source of monopoly power is

barriers to entry

A monopoly

can set the price it charges for its output but faces a downward-sloping demand curve so it cannot earn unlimited profits.

Marginal revenue for a monopolist is computed as

change in total revenue per one unit increase in quantity sold.

A monopoly firm is a price

maker and has no supply curve

A profit-maximizing monopolist will produce the level of output at which

marginal revenue is equal to marginal cost.

Deadweight loss

measures monopoly inefficiency.

For a monopolist, when the output effect is greater than the price effect, marginal revenue is

positive

When regulators use a marginal-cost pricing strategy to regulate a natural monopoly, the regulated monopoly

will experience a loss. will experience a price below average total cost. may rely on a government subsidy to remain in business. All of the above are correct.