Ch 8 - Monopoly, Oligopoly, and Monopolistic Competition

Which of the following are examples of price discrimination?

1. Mail-in rebates 2. Discounted airfare for passengers who purchase their tickets 21 days in advance

A firm that has market power:

1. can raise the price of its good without losing all of its sales. 2. faces a downward-sloping demand curve.

Consider a price-discriminating monopolist. Which of the following statements is correct?

A monopolist that price discriminates will tend to produce more than one that doesn't.

___ laws are designed to encourage competition by breaking up large companies and discouraging mergers between companies in the same industry.

Anit-trust

___ regulation is a method of regulation under which a regulated firm is permitted to charge prices that cover the explicit costs of production plus a markup to cover the opportunity cost of resources provided by the firm's owners

Cost-plus

A common misconception is that a firm with market power can sell any quantity at any price it wishes. It cannot. All it can do is pick a price-quantity combination on its ___ ___

Demand curve

True or false: A monopolist will always earn an economic profit.

False

True or false: Price discrimination always hurts consumers.

False

When start-up costs are high relative to marginal cost, the production process is likely to exhibit which of the following?

Increasing returns to scale

The profit-maximizing rule for a monopolist is to choose the level of output such that _____.

MR=MC

Which of the following gives the inventors or developers of new products the exclusive right to sell those products for a specified period of time?

Patents

The practice by which a seller offers a discount to all buyers who overcome some obstacle is known as

The practice by which a seller offers a discount to all buyers who overcome some obstacle is known as

True or False? Patents and copyrights are a source of market power.

True

A price setter is

a firm with at least some latitude to set its own price.

Oligopoly is an industry structure in which

a small number of firms sell products that are either close or perfect substitutes.

Network economies arise when products

become more valuable as more people use them.

Antitrust laws are designed to encourage competition by:

breaking up larger companies and keep them from gaining too much power in their specific industry.

Which of the following is the same for a monopolist and a perfectly competitive firm?

calculation of marginal costs

Price discrimination _____ consumer surplus.

can sometimes increase

A perfectly discriminating monopolist

charges each buyer exactly his or her reservation price.

If a firm doubles all of its inputs and output exactly doubles, then the production process exhibits

constant returns to scale.

If all inputs are increased by a fixed proportion, and you observe output increases by that same proportion, then the production process exhibits

constant returns to scale.

A method of regulation under which the regulated firm is permitted to charge prices that cover the explicit costs of production plus a markup to cover the opportunity cost of resources provided by the firm's owners is known as:

cost-plus regulation

For products that have extremely high fixed costs relative to their marginal cost, the average total cost of production will typically _____ as output increases.

decrease

Price ___ is the practice of charging different buyers different prices for essentially the same product.

discrimination

If a firm has market power, then it faces a(n) ________.

downward sloping demand curve

The demand curve facing an imperfectly competitive firm is

downward sloping.

One way that the government might maintain the rustic quality of the experience in a place like Rocky Mountain National Park would be to ______.

grant exclusive concession licenses to a vendor that adheres to certain requirements

When the government issues a license giving one firm the right to produce and sell a product exclusively, it is ______.

granting the firm market power

At a monopolist's profit-maximizing level of output, the benefit to consumers of the last unit produced is _____ the marginal cost of producing it.

greater than

One advantage of ______ is that it maintains firms' incentives to keep costs low.

having private companies bid for right to operate as natural monopolist

The holder of a copyright is an example of an

imperfectly competitive form/price setter

A monopolist's marginal revenue from selling an additional unit of an output

is less than its price.

For a monopolist and a perfectly competitive firm, the calculation of marginal cost

is the same.

A profit-maximizing monopolist will choose the level of output such that _____.

its marginal revenue equals its marginal cost

A monopolist's profit-maximizing level of output is inefficient because the marginal cost of the last unit produced is _____ than the marginal benefit to society of the last unit produced.

less than

The additional revenue a monopolist receives from selling an additional unit of output is

less than the market price

In San Diego, which is close to the border with Mexico, taquerias (inexpensive Mexican fast food restaurants) are everywhere. They all have similar menus, but differ somewhat in their specialties, atmosphere and location. In light of this, the taqueria market in San Diego is an example of ________.

monopolistic competition

A market in which a large number of firms produce slightly differentiated products that are reasonably close substitutes for one another is a(n) _____.

monopolistically competitive market

All else equal, a monopolist that price discriminates will tend to produce _____ one that does not.

more than

The more people use a given social media platform like Facebook, the more valuable it becomes. This suggests that _____ are likely to be an important source of market power for Facebook.

network economies

An industry structure in which a small number of firms produce products that are either close or perfect substitutes is a(n) _______.

oligopoly

A firm that charges each buyer exactly his or her reservation price is a _____.

perfectly discriminating monopolist

A monopolist who can charge each buyer exactly his or her reservation price is called a

perfectly discriminating monopolist.

The essential difference between perfectly competitive firms and imperfectly competitive firms is that perfectly competitive firms face _____ demand curves while imperfectly competitive firms face _____ demand curves.

perfectly elastic; downward-sloping

Student discounts and mail-in rebates are examples of ______.

price discrimination

The practice of charging different buyers different prices for essentially the same good is known as _____.

price discrimination

A firm with at least some latitude to set its price is a ______.

price setter

One potential problem with state ownership of natural monopolies is that:

private natural monopolies are likely to face stronger incentives to cut costs than state-owned natural monopolies

A market in which there is only one supplier of a unique product with no close substitutes is a(n) _____.

pure monopoly

Prior to November 2011, Pfizer had the exclusive right to sell atorvastatin (brand name, Lipitor), a highly effective drug to treat high cholesterol that has no close substitutes. Prior to November 2011, the market for atorvastatin was an example of

pure monopoly.

Which of the following most likely exemplifies a pure monopoly?

regional utilities

Monopolists _____ earn an economic profit.

sometimes

One way to deal with natural monopolies is to allow private firms bid for a natural monopolist's market. In this case, the winning firm:

still has a strong incentive to keep costs low

A pure monopolist is

the only supplier of a unique product with no close substitutes

The hurdle method of price discrimination refers to ______.

the practice by which a seller offers a discount to all buyers who overcome some obstacle

Compared to private natural monopolies, state-owned natural monopolies are likely to face _____ incentives to cut costs.

weaker

Suppose one firm owns all of the cranberry farms in the world. We can predict that this firm ______.

will have market power

If a single firm controls an input essential to the production of a given product, then that firm

will have market power.