Chapter 15 Vocab and Questions
For a profit-maximizing monopoly that charges a single price, what is the relationship between price P , marginal revenue MR , and marginal cost MC ?
P>MR and MR=MC .
The legislation passed by Congress in 1890 to reduce the market power of large and powerful "trusts" is called the
Sherman Act.
The De Beers diamond monopoly is a classic example of a monopoly that
arises from the ownership of a key resource
A firm is a natural monopoly if it exhibits as its output increases.
decreasing average total cost
The socially efficient level of production occurs where the marginal cost curve intersects which of the following curves?
demand
For a typical natural monopoly, average total cost is
falling and marginal cost is below average total cost.
In order to sell more of its product, a monopolist must
lower its price.
The deadweight loss from monopoly arises because
some potential consumers who forgo buying the good value it more than its marginal cost.
If a monopoly's fixed costs increase, its price will ____ and its profit will ____.
stay the same; decrease
price discrimination the business practice of selling the same good at different prices to different customers
the business practice of selling the same good at different prices to different customers
Antitrust regulators are likely to prohibit two firms from merging if
the combined firm will have a large share of the market.
Price discrimination by a monopolist refers to charging different prices based on
the consumer's willingness to pay.
If regulators impose marginal-cost pricing on a natural monopoly, a possible problem is that
the firm will lose money and exit the market.
A government-created monopoly arises when
the government gives a firm the exclusive right to sell some good or service
The key difference between a competitive firm and a monopoly firm is the ability to select
the price of its output.
Many movie theaters allow discount tickets to be sold to senior citizens because
the theaters are profit maximizers
A monopoly firm can sell 150 units of output for $12.00 per unit. Alternatively, it can sell 151 units of output for $11.95 per unit. The marginal revenue of the 151st unit of output is
$4.45
Which of the following statements is (are) true of a monopoly? (i) A monopoly has the ability to set the price of its product at whatever level it desires. (ii) A monopoly's total revenue will always increase when it increases the price of its product. (iii) A monopoly can earn unlimited profits.
(i) only
Monopoly
A firm that is the sole seller of a product without any close substitutes
Which of the following is an example of a barrier to entry? (i) A key resource is owned by a single firm. (ii) The costs of production make a single producer more efficient than a large number of producers. (iii) The government has given the existing monopoly the exclusive right to produce the good.
All of the above are correct
Discount coupons have the ability to help a grocery store a. price discriminate. b. target its customers based on their individual willingness to pay. c. maximize its profit
All of the above are correct.
When regulators use a marginal cost pricing strategy to regulate a natural monopoly, the regulated monopoly a. will experience a loss. b. will experience a price below average total cost. c. may rely on a government subsidy to remain in business
All of the above are correct.
Let P = price; MR = marginal revenue; and MC = marginal cost. For a profit-maximizing monopolist,
P > MR = MC.
Angelo is a wholesale meatball distributor. He sells his meatballs to all the finest Italian restaurants in town. Nobody can make meatballs like Angelo. As a result, his is the only business in town that sells meatballs to restaurants. Assuming that Angelo is maximizing his profit, which of the following statements is true?
Meatball prices will exceed marginal cost.
Monopoly pricing prevents some mutually beneficial trades from taking place. These unrealized mutually beneficial trades are
a deadweight loss to society.
Compared to the social optimum, a monopoly firm chooses
a quantity that is too low and a price that is too high
Natural Monopoly
a type of monopoly that arises because a single firm can supply a good or service to an entire market at a lower cost than could two or more firms
A monopoly's marginal cost will
be less than the price per unit of its product
When a monopolist switches from charging a single price to practicing perfect price discrimination, it reduces
consumer surplus.
The monopolist's profit-maximizing quantity of output is determined by the intersection of which of the following two curves?
marginal cost and marginal revenue
If a profit-maximizing monopolist faces a downward-sloping market demand curve, its
marginal revenue is less than the price of the product.
When a natural monopoly exists, it is
never cost effective for two or more private firms to produce the product
The practice of selling the same goods to different customers at different prices, but with the same marginal cost, is known as
price discrimination
Some government grants of monopoly power are desirable if they
provide incentives for invention and artistic creation
Price discrimination requires the firm to
separate customers according to their willingness to pay.
