CH 12 MONOPOLY

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monopolies are a price

maker

A report by the Wall Street Journal found there were several online retailers that offered customers different prices based on their browsing history and other characteristics. This is an example of​ ____________.

​third-degree price discrimination.

Which of the following describes a​ monopolist's demand​ curve?

A y​-intercept of​ $8 and​ downward-sloping with a slope of 1.

price for monopolies

P > MR = MC

Which of the following equations calculates economic profits for a​ monopoly?

Profits = (P-ATC)xQ

When comparing the graph of your ATC curve for a natural monopoly with that of a firm in perfect​ competition, we see that​ ____________.

a natural monopoly has a​ downward-sloping ATC​ curve, while a firm in perfect competition has a​ U-shaped curve.

When do natural monopolies occur?

fixed costs are high

If a monopoly selling 300 computers at ​$3,000 decides to lower its price to ​$2,000 in order to sell 100 more​ computers, then the firm

has negative marginal revenue.

type of product perfect competition has

homogenous

A monopoly is selling workbooks to students in a college town and is currently maximizing profits by charging ​$70 per book. The marginal cost of textbooks

is less than $70

Consider the​ differences, if​ any, between a perfectly competitive market and a monopoly market. Compared to a perfectly competitive​ market, consumer surplus is lower / higher ​, producer surplus is higher / lower ​, and deadweight loss is higher / lower

lower, higher, higher

how many sellers are in a perfect competition

many

For a market to be characterized as perfectly competitive ​, there must be​ ___________.

many sellers, where the price of the good is determined by the market

in a perfect competition social surplus is

maximized

Why is monopoly a market failure

monopolist don't maximize profits lack of competition does not make producer compete by lowering prices monopolists behave competitively even without competition

type of product monopoly has

no close substitutes

How many sellers are in a monopoly?

one

long equilibrium profits for a monopolistic market are

potentially greater than zero

Edgar says that a single firm in the wind power industry is unlikely to have a significant degree of monopoly power for an extended period of time. Since the cost of producing an additional unit of wind energy is so​ low, a large number of firms can enter the market and compete away economic profits. Do you agree with this​ analysis?

No, Edgar's argument ignores potentially large fixed costs that will act as a barrier to entry.

Price in perfect competition

P = MR = C

As this chapter​ explains, a monopoly is an industry structure where only one firm provides a good or service that has no close substitutes. This question explores the last part of this definition further. In​ 1947, the United States government charged the DuPont Company with a violation of the Sherman Act. The government argued that DuPont was monopolizing the cellophane market. At​ trial, the government showed that DuPont produced nearly 75 percent of all of the cellophane sold in the United States each year.​ Nonetheless, the U.S. Supreme Court ruled in favor of DuPont and dismissed the case. Which of the following is a likely argument used by DuPont to convince the Supreme Court that it did not violate the Sherman​ Act?

There are many close substitutes for cellophane such as aluminum foil and waxed​ paper, so DuPont did not have significant market power.

Sirius XM Satellite Radio and XM Satellite Radio were the only two satellite radio providers in the United States. The Department of Justice​ (DOJ) and the Federal Communications Commission​ (FCC) approved the merger of the two companies in 2008 even though​ Sirius-XM would then control 100 percent of the satellite radio market. Which of the following arguments do you think Sirius and XM used to convince the DOJ and the FCC to allow the merger to​ proceed?

There are many close substitutes for satellite​ radio; therefore,​ Sirius-XM would not exercise market power.

Which of the following best describes network​ externalities?

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

When a firm exercises its monopoly​ power, social surplus is lower / higher when compared to a perfectly competitive market.

lower

in a monopoly social surplus is

not maximized (market failure)

perfect competition is a price

taker

Which of the following is not one of the sources of natural market​ power? a. having individual expertise in a field b. network externalities c. controlling a key resource d. production of a luxury good

production of a luxury good

Janet knows a lot of people who do not like​ Marmite®, a yeast extract that is used as a spread on toast. She says that Marmite is so unpopular that​ Unilever, the company that manufactures​ Marmite®, cannot possibly have any monopoly power. Do you agree with this​ analysis?

​No, monopoly power is based on whether a good has any close​ substitutes, not whether your friends like the product.

In which of the following ways is a monopoly beneficial to an​ economy? A.Monopoly profits give firms more reason to invest in the creation of new products through research and development. B. Firms that are allowed monopoly profits search out innovative technologies that they can bring to market. C. With natural​ monopolies, costs may be lower than those that would exist in competitive markets with many producers. D. All of the above.

All of the above

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

deadweight loss

demand curve for a monopoly

downward sloping

By forcing monopolists to set price equal to marginal​ cost,

economic loss can occur.

The demand curve for a perfectly competitive firm is

horizontal (perfectly inelastic)

Which of the following is not a characteristic of​ monopoly? A. Market power. B. Produces identical goods. C single seller. D Price-maker.

produces identical goods

long equillibruim profits for a perfectly competitive market are

zero


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