Microeconomics Chapter 12

Natural market power is created by​ ___________, and arises due to​ ____________

market​ forces; economies of scale.

Calling long distance is often more expensive on weekdays between 8 am and 5 pm than in the evening hours. Why is this the​ case?

Businesses who must call suppliers or customers during business hours have few alternatives and therefore have an inelastic demand during the workday compared to​ after-work hours.

Both competitive firms and monopolies produce at the level where marginal cost equals marginal revenue. ​Then, other things remaining the​ same, why is price lower in a competitive market than in a​ monopoly?

Competitive markets face perfectly elastic demand and marginal​ revenue, while monopolies face​ downward-sloping demand and marginal revenue.

Which of the following is a key difference between perfect competition and​ monopoly?

In perfect​ competition, no one firm can influence​ price, but with​ monopoly, a single seller sets the price.

Why is city drinking water better off as a natural​ monopoly?

Industries like city drinking water experience economies of scale since they have high fixed costs.​ Thus, it is cheaper to have a single firm provide a larger quantity.

what must exist for a firm to engage in price​ discrimination?

The firm must be able to identify and separate its buyers into different​ classes, and the lowminus−price buyers cannot resell the product to the highminus−price buyers.

An example of an industry or service that is a natural monopoly is​ ____________.

a natural gas pipeline

Most movie theatres charge different prices to different groups of customers for movie admission but not on movie popcorn. Which of the following is a reason for​ this?

because it is easier to limit resale in movie admissions but not in popcorn

Which of the following is not one of the sources of natural market​ power? A. Having individual expertise in a field. B. Controlling a key resource. Your answer is not correct. C. Owning a firm in a small community. D. The presence of economies of scale.

c

A firm that can effectively price discriminate will charge a higher price to

customers who have the more inelastic demand for the product.

When a firm exercises its monopoly​ power, the cost to society is the​

deadweight loss

Social surplus increases because​ ____________

deadweight loss is eliminated

f the monopolist loses its monopoly​ power, price ____________consumer surplus ____________ producer surplus ____________ and social surplus ____________

decreases increases decreases increases

profits=(p-atc)xq

equation that calculates economic profits for a​ monopoly

Compared to a perfectly competitive​ market, the price in a monopoly market is lower/higher and quantity is lower/higher

higher lower

When a firm exercises its monopoly​ power, social surplus is lower or higher than it is if the market were perfectly competitive.

lower

Compared to a perfectly competitive​ market, consumer surplus is lower/higher producer surplus is lower/higher and deadweight loss is lower/higher

lower higher higher

Suppose you are an​ "all-knowing" government planner. Your goal is to regulate a​ monopolist's price and quantity in order to maximize social welfare but still allow the monopolist to produce. To accomplish your​ goal, you would have the monopoly produce where​ ____________. ​(Assume costs are such that the firm would not incur a​ loss)

marginal cost equals​ demand, and you would price the good at marginal cost.

Compared to a monopoly that does not price​ discriminate, a monopolist who engages in perfect price discrimination will produce more/less output and have no/alot deadweight loss.

more no

Suppose the government grants an individual or company the sole right to produce and sell a good or service.In this​ case, the government is granting a

patent

in perfectly competitive markets marginal rev=

price

Market power relates to the ability of sellers to affect​ __________, and arises because of​ ____________.

prices; barriers to entry.

Which of the following are properties of a​ monopoly?

there are high barriers to entry, price-maker, there is only one seller

network​ externalities?

they occur when a​ product's value increases as more consumers begin to use it.

Legal market power is created by​ ___________, and arises due to​ ____________.

the​ government; copyrights

In a competitive​ market, a supply curve shows all the price and quantity combinations at which firms will produce. Does a monopoly face a similar supply​ curve?

​No, a monopoly is a​ price-maker and its production decisions are determined by its​ downward-sloping demand curve.

With perfect price​ discrimination, a monopoly can extract the​ ________ price each customer is willing to pay and thereby obtain the entire​ ________ surplus.

​maximum; consumer