ECON 2302 Test 3 Ch. 15
The deadweight loss associated with a monopoly occurs because the monopolist
produces an output level less than the social optimal level
A monopolist can sell 200 units of output for $36 per unit. Alternatively, it can sell 201 units of output for $35.50 per unit. The marginal revenue of the 201st unit of output is
$-4.20
Monopolies are inefficient because they (i) eliminate barriers to entry (ii) Price of their product at a level where marginal revenue exceeds marginal cost (iii) Restrict output below the socially efficient level of production
(iii)
Round trip airplane tickets are usually cheaper if you stay over a Saturday night before you fly back. What is the reason for this price discrepancy?
-Airlines are practicing imperfect price discrimination to raise profits -Airlines charge a different rate based on the different nature of peoples travel needs -Airlines are attempting to charge people based on their willingness to pay
Patents, copyrights, and trademarks
-Are examples of government-created monopolies -are examples of barriers to entry -Allow their owners to charge higher prices
Which of the following is a characteristic of a natural monopoly? Part 2
-Average cost exceeds marginal cost over large regions of output -Increasing the number of firms increasing each firm's average total cost -One firm can supply output at a lower cost than two firms
Patent and copyright laws encourage
-Creative activity -Research and development
Antitrust laws allow the government to
-prevent mergers -break up companies -promote competition
A movie theater can increase its profits through price discrimination by charging a higher price to adults and a lower price to children if it
All of the above
Which of the following is a characteristic of a natural monopoly?
Average total cost declines over large regions of output
Which of the following is not a characteristic of a monopoly?
One buyer
For a monopoly firm, which of the following equalities is always true?
Price= average revenue
For a monopoly, the socially efficient level of output occurs where
average revenue equals marginal cost
A firm that the sole seller of a product without close substitutes is
a monopolist
Monopolies are socially inefficient because the price they charge is
above marginal cost
For a monopoly,
average revenue exceeds marginal revenue
A fundamental source of monopoly market power arises from
barriers to entry
A monopoly market is characterized by
barriers to entry
Antitrust laws allow the government to...
break up companies
The social cost of a monopoly is equal to its
dead weight loss
The socially efficient level of production occurs where the marginal cost curve intersects
demand
The market demand curve for a monopolist is typically
downward sloping
Perfect price discrimination
eliminates dead weight loss
Price discrimination explains why Ivy league universities often base tuition costs on students
financial resources
In order to sell more of its product, a monopolist must
lower its price
A monopoly firm is a price
maker and has no supply curve
Marginal revenue can become negative for
monopoly firms but not for competitive firms
Which of the following is not a reason for the existence of a monopoly?
of scale
Financial aid to college students, quantity discounts, and senior citizen discounts are all examples of
price discrimination
The practice of selling the same goods to different customers at different prices, but with the same marginal cost, is know as
price discrimination
When a monopolist is able to sell its product at different prices, it is engaging in
price discrimination
Most markets are not monopolies in the real world because
there are reasonable substitutes for most goods
