Microeconomics Chapter 12 SmartBook

How does a monopoly generally transfer income?

From consumers to the owners of the monopoly

Which of the following are potential solutions to the economic losses incurred by a regulated monopoly caused by socially optimal pricing?

Price discrimination Public subsidies

When efficiency and allocative efficiency are not achieved in a market, it is known as an efficiency loss.

Productive

Which of the following exists when a single firm is the sole producer of a product for which there are no close substitutes?

Pure monopoly

What is another name for deadweight loss?

Efficiency loss

Hiring incompetent relatives and poor supervision of workers can result in ______.

X-inefficiency

The trend of federal, state, and local governments abandoning price regulation if the possibility of competition looks promising is due to _____.

X-inefficiency

In general, as shown in the figure, a fair return price will lead to ______ and a socially optimal price will lead to ______.

normal profit; economic loss

The strongest barriers to entry effectively block all ______.

potential competition

Which of the following describes what "no close substitutes" means as it relates to consumers and a pure monopoly?

A consumer must either buy the monopolized product or do without it entirely.

Which of the following are examples of geographic monopolies?

A small town served by one airline A small town with one railroad A small town with one restaurant

Which of the following does the monopolist not have?

A supply curve

What is the term for factors that prohibit firms from entering an industry?

Barriers to entry

How does a monopolist change the price of its product?

By changing the quantity of the product it produces.

______ of essential property is a barrier to entry into an industry.

Control

Price ______ is illegal in the United States only if it is part of a firm's strategy to lessen or eliminate competition.

discrimination

The practice of charging different prices to different buyers for a specific product is known as price

discrimination

A monopolist must obtain a minimum of a(n) profit in the long run, or it will go out of business.

normal

In pure competition, ______ efficiency is achieved because free entry and exit forces firms to operate where average total cost is at a minimum.

productive

Monopoly yields neither efficiency nor allocative efficiency.

productive

An unregulated monopolist uses the marginal revenue equals marginal cost (MR = MC) rule to determine the ______.

profit-maximizing output and price

Comparing total revenue and total cost at each possible level of production and choosing the output with the greatest possible difference is another way to determine:

the profit-maximizing output

How do economies of scale affect long-run average total costs for a firm?

Long-run average total costs decline over a wide range of output.

Based on the figure of the ATC curve of a chosen industry, the per-unit cost for one producer selling 200 units of output would be $10. If the industry instead supported two producers, each with an output of 100 units, the average per-unit cost for each firm would likely be ______.

$15

In a given industry, one producer of 200 units of output can achieve an economy of scale yielding an average per-unit cost of $10. Based on the figure of the ATC curve of the industry, what would the likely per-unit cost be with four producers, each producing 50 units?

$20

A monopolist does not have a supply curve because:

-it does not equate price with marginal cost -there is no single, unique price associated with each level of output

Monopolists use economies of scale to block the entry of new firms into an industry by reducing ______ so that other firms cannot compete.

prices

A firm's manager is given the following information: To sell 4 units of output, a price of $132 must be charged; this level of output reflects marginal revenue of $102 and marginal costs of $60. If the firm wants to sell 5 units of output, a price of $122 must be charged; this reflects marginal revenue of $82 and marginal costs of $70. To sell 6 units of output, a price of $112 must be charged; at this level of output, marginal revenue will be $62 and marginal costs $80. What should the manager do?

122

Why might a monopolist accept a less-than-maximum per-unit profit?

Additional sales more than compensate for the lower profit per unit.

A monopolist does not achieve productive efficiency because it produces a level of output that does not correspond to the minimum point of the cost curve. (Enter only one word per blank.)

Average Total

True or false: When a firm with low marginal costs and fixed development costs adds more customers, the average total cost of output increases.

False

Which of the following describes why marginal revenue is less than price for monopolists?

Because the lower price of the extra unit of output also applies to all prior units of output

As an example of price discrimination, airlines charge higher fares to business travelers whose demand for travel is and offer lower, more restricted fares to vacationers and others with more demand.

Blank 1: inelastic Blank 2: elastic

A monopolist uses the profit-maximizing rule of marginal revenue equals marginal cost to determine the profit-maximizing and .

Blank 1: output, quantity, production, or supply Blank 2: price

With a fixed downward-sloping demand curve, how can a monopolist increase sales?

By charging a lower price

How is economic profit determined?

By multiplying per-unit profit by the total quantity produced

Which of the following two terms are synonymous in a pure monopoly?

Firm and industry

Which of the following are reasons for a monopoly's loss of economic profit?

Change in tastes reducing demand Upward-shifting cost curves caused by escalating resource prices

Which of the following is a reason for a monopoly's loss of economic profit?

Changes in tastes that reduce demand for a product

Simultaneous is a product's ability to satisfy a large number of consumers at the same time.

Consumption

Which of the following are the main characteristics of a pure monopoly?

Control over the price Blocked entry for other firms Unavailability of close substitutes for its products Presence of a single seller

Which statement is true about costs for purely competitive and monopolistic producers?

Costs for purely competitive and monopolistic producers may not be the same.

With a natural monopoly the demand curve intersects the long-run average total cost curve where the long-run average total cost curve is still .

Declining

Price ______ is illegal in the United States only if it is part of a firm's strategy to lessen or eliminate competition.

Discrimination

What is the shape of the product demand curve for a pure monopolist?

Downward sloping

Which of the following is more likely for a pure monopolist than for a pure competitor?

Economic profit

A natural monopoly may occur when only a single firm can achieve the of scale necessary to compete in an industry.

Economies

What term is used to describe declining average total costs with added firm size?

Economies of scale

Why do costs differ between a purely competitive firm and a pure monopoly?

Economies of scale A factor called "X-inefficiency"

Most regulatory agencies in the United States establish a(n) -return price that a utility company is allowed to earn.

Fair

True or false: A firm is producing 24 units of output. At the 24th unit of output, marginal revenue is $5, and marginal cost is $4; at the 25th unit of output, marginal revenue is $4.50, and marginal cost is $4.50; at the 26th unit of output, marginal revenue is $4, and marginal cost is $5. This firm made the correct choice by producing only 24 units of output and then stopping.

False

True or false: For a pure monopolist, total revenue increases at an increasing rate.

False

True or false: Government licensing is not a barrier to entry.

False

True or false: Price discrimination is always legal in the United States.

False

True or false: Price discrimination is not practiced very often in the US economy.

False

______ create(s) legal barriers to entry.

Government

Which of the following are legal barriers to entry?

Government licensing Patents

Which of the following are characteristics of public utilities?

Government owned or regulated Monopolies or near monopolies

Which of the following lead to declines in long-run average total costs?

Greater use of specialized inputs Spreading of product development costs Network effects

Which of the following are examples of X-inefficiencies that may be found in regulated firms?

Higher-than-competitive wages More managers and staff than necessary Nicer-than-typical office buildings

Which of the following can cause X-inefficiency?

Hiring incompetent relatives Avoiding business risk Maintaining a poorly motivated work force

Which of the following steps are necessary to determine the profit-maximizing level of output, profit-maximizing price, and economic profit in pure monopoly?

Identify the profit-maximizing price and output by finding the price/output combination at MR=MC. Employ the profit-maximizing rule of MR=MC.

Which of the following are entry barriers created by monopolists?

Increased advertising Price reductions

Government creates barriers to entry.

Legal

Which are types of barriers to entry?

Legal Economic Technological

What are the two legal barriers to entry created by the government?

Licenses Patents

If producing is preferable to shutting down, a profit-seeking monopolist will produce up to the output at which _______.

MR = MC

Which of the following can be a cause of extensive economies of scale?

Modern technology

The main characteristics of a pure are a single seller, no close substitutes, a price maker, blocked entry, and non-price competition.

Monopoly

Which of the following are conditions necessary for price discrimination?

Monopoly power Market segregation No resale

Which are reasons that costs differ between a purely competitive firm and a pure monopoly?

Monopoly-preserving expenditures The "very long run" perspective

For which of the following market structures does government policy allow for expansion and only eventual regulation of prices and operations?

Natural monopoly

What may occur when only a single firm can achieve the economies of scale necessary to compete in an industry?

Natural monopoly

What is the term used to describe a situation where a single firm has the bulk of sales in a specific market?

Near-monopoly

effects exist if the value of a product to each user increases as the total number of users increase.

Network

Which of the following may make a pure monopoly unsustainable over the long-run?

New technology

Which characteristic of pure monopoly requires a consumer to buy the monopolized product or do without it entirely?

No close substitutes

Which of the following are assumptions made in the model of pure monopoly?

No unit of government regulates the firm. Patents, economies of scale, and resource ownership secure the firm's monopoly. The firm is a single-price monopolist and charges the same price for all units of output.

In the long run, a monopolist must obtain, at a minimum, a(n) ______ profit to prevent going out of business.

Normal

If the objective of government is to achieve allocative efficiency, what kind of price should government establish for the monopolist?

One that is equal to its marginal cost.

Which of the following is considered a barrier to entry into an industry?

Ownership of essential property

Which of the following is considered a barrier to entry protecting an inventor from its rivals?

Patents

Which of the following are reasons monopoly is not widespread in the United States?

Patents eventually expire. Barriers to entry are seldom completely successful.

Market segregation must exist in order for a monopolist to ______.

Price discrimate

Baseball ticket sellers charge a different price for adults and children. Ballpark concession stands charge the same prices for products sold to any customer. The baseball ticket sellers are providing a successful example of

Price discrimination

What is the term used to refer to charging different prices to different buyers of a specific product?

Price discrimination

utilities are government owned or regulated.

Public

Higher-than-competitive wages, nicer-than-typical office buildings, and more managers and staff than are necessary are all examples of X-inefficiency found in firms.

Regulated

Which of the following add nothing to the firm's output, but increase the firm's costs?

Rent-seeking expenditures

What leads to most patentable inventions and products?

Research and development

Why does an inventor need to have her or his invention protected from rivals?

Rivals will use the invention without having shared in the effort and expense of developing it.

A natural monopoly's economies of scale refers to one firm's ability to achieve the lowest long-run average total cost, also known as

the minimum efficient scale at a high level of output.

What is the term used to refer to a product's ability to satisfy a large number of consumers at the same time?

Simultaneous consumption

Which of the following have helped firms achieve economies of scale?

Specialized inputs Learning by doing Simultaneous consumption

If a firm is found guilty of achieving a monopoly through anticompetitive actions, then which of the following may occur?

The firm may be broken into two or more competing firms. The firm may be expressly prohibited from engaging in certain business activities.

In a pure monopoly, marginal revenue is less than price for every unit of output except which one?

The first

Which of the following are reasons that a monopolist is considered a price maker?

The monopolist controls the total quantity supplied. The monopolist exerts control over the price.

Which of the following explains why a pure monopolist is able to maintain an economic profit in the long run?

There are no new entrants to increase supply, drive down price, and eliminate profit.

Which of the following reasons explains why a professional sports team can be considered a monopoly?

They are the sole suppliers of specific services in a large geographic area.

How much will a profit-seeking monopolist produce if producing is preferable to shutting down?

Up to the output at which marginal revenue equals marginal cost

Which of the following factors explains the trend of federal, state, and local governments to abandon price regulation if the possibility of competition looks promising?

Various forms of X-inefficiency

When a firm produces a specific output level at a higher cost than the necessary cost for that level of output, it is called ______.

X-inefficiency

A monopolist will never choose a price-quantity combination where price reductions cause:

a decrease in total revenue

The exclusive right of an inventor to use, or to allow another to use, her or his invention is called:

a patent

If the objective of government is to achieve efficiency, it should establish a legal price for the monopolist that is equal to its marginal cost.

allocative

Monopoly yields neither productive nor efficiency.

allocative

Because a monopoly is a price maker and prices its products in the elastic portion of the demand curve, its output is less than that required to achieve minimum average total cost. In addition, the monopoly's price will exceed its marginal cost at this level of output. Monopoly therefore creates

an efficiency loss.

The government broke up Standard Oil in 1911 due to its breach of (one word) laws.

antitrust

The monopolist's level of output is not at the minimum point of ______, meaning it will not be productively efficient.

average total cost

At the profit-maximizing output (Qm), a monopolist's ______ is higher than marginal cost; therefore, a monopolist has allocative inefficiency.

price (Pm)

Two legal to entry are patents and licenses.

barriers

As an example of ______, the Federal Communications Commission licenses only so many radio and television stations in each geographic area.

barriers to entry

In a monopoly, the average total cost of output declines as more customers are added because marginal ______.

costs are low with simultaneous consumption.

Marginal revenue is less than price at every unit of output because the monopolist

could have sold these prior units at a higher price if it had not produced and sold the extra output.

Efficiency loss is also known as ______ loss.

deadweight

A natural monopoly occurs when the market demand curve crosses the long-run average total cost (ATC) curve where average total costs are still ______.

declining

Economies of scale refer to ______ average total costs with added firm size.

declining

A pure monopolist must face a downward-sloping product curve.

demand

A recent trend in the United States is to (Enter one word) industries in which competition seems possible.

deregulate

Long-distance phone calls, natural gas distribution, wireless communication, and cable television are all examples of

deregulated natural monopolies

Price , or charging different prices to different consumers, is widely practiced in the US economy.

discrimination

Price makers are firms with:

downward-sloping demand curves

Total ______ is found by multiplying per-unit profit by the profit-maximizing output.

economic profit

A firm's long-run average total costs may decline over a wide range of output due to of scale.

economies

The monopolist wants a price-quantity combination to fall in the _____ section of its demand curve, where a lower price means _____ total revenue.

elastic; greater

Production occurs up to that level of output at which price ______ marginal cost, resulting in allocative efficiency under pure competition.

equals

X-inefficiency occurs when a firm operates at a cost that is (higher/lower) than the lowest cost for a particular level of output.

higher

One option for dealing with an unsustainable monopoly due to emerging new technology is to _____ the monopoly and allow ______ to take place.

ignore; creative destruction

For a pure monopolist, total revenue ______.

increases at a diminishing rate

A regulated monopoly is likely to suffer losses when ______.

price is set to marginal cost (P = MC) price is set to achieve the most efficient allocation of resources

When comparing the demand curve for a perfectly competitive firm to the demand curve of a monopolist, the monopolist's demand curve would be more ______.

inelastic

In many large cities, the number of taxicabs allowed to operate is limited by the local government through the ______.

issuing of licenses

When a monopolist charges a higher price than a purely competitive firm would, the monopolist essentially ______.

levies a "private tax" on consumers

With a fixed downward sloping demand curve, the pure monopolist can only increase sales by charging a ______ price.

lower

Monopolists use economies of scale to block the entry of new firms into an industry by ______.

lowering prices so that another firm cannot compete

Firms with downward-sloping product demand curves are called price

makers, setters, or maker

The change in total revenue associated with a one-unit change in output is called revenue.

marginal

In a pure monopoly, ______ is less than the price for every unit of output except the first.

marginal revenue

A(n) ______ is able to maintain an economic profit in the long run because there are no new entrants to increase supply, drive down price, and eliminate economic profit.

monopoly

Network effects may drive a market toward , because consumers tend to choose standard products that everyone else is using.

monopoly

Patents, economies of scale, and resource ownership are all assumptions of the pure model.

monopoly

Slashing prices is an example of an entry barrier created by a(n) .

monopoly

When the market demand curve crosses the long-run average total cost curve where average total costs are declining, the firm is called a(n)

natural monopoly

A -monopoly occurs when a single firm has the bulk of sales in a specific market.

near or quasi

In the long run, only ______ for a pure competitor are possible, whereas a monopoly earns ______.

normal profits; economic profits

A (one word) is the exclusive right of an inventor to use, or allow another to use, her or his invention.

patent

Fair return pricing is a result of the Supreme Court ruling that regulatory agencies must ______.

permit a "fair return" to utility owners

At a pure monopolist's profit-maximizing output (Qm), its exceeds marginal cost, resulting in allocative inefficiency.

price

Drawing a vertical line from the profit-maximizing output on the horizontal axis to the demand curve represents the ______.

price

Entry is totally blocked to competitors in a(n) ______.

pure monopoly

What is it called when a firm spends significant money to maintain a monopoly through government legislation?

rent-seeking expenditures

and development leads to most patentable inventions and products.

research

Two solutions to the economic losses caused by socially optimal pricing are providing public and condoning price discrimination.

subsidies

A pure monopoly exists when a single firm is the sole producer of a product for which there are no close ___.

substitutes

In a purely competitive industry:

the demand curve for each individual firm is perfectly elastic, while that for the industry is downward-sloping

The firm and ______ are synonymous in pure monopoly.

the industry

Marginal revenue is the change in ______ revenue associated with a single-unit change in output.

total

The monopolist seeks maximum profit, not maximum unit profit.

total

The profit-maximizing level of output can be determined by comparing ______.

total revenue and total cost at each possible level of production and choosing the output with the greatest positive difference