Ch.10: Monopoly

P1 = 1.01; Q1= 8; R1= 8.08 P2 = 1.00; Q2 = 9; R2= 9.00 When price falls from 1.01 to 1, Revenue on those 1st 8 goods changes by?

-0.08

What is a Natural monopoly?

A firm that can produce at a lower average cost per unit of output than a number of smaller firms producing a similar amount of total output.

What is a Price discrimination?

A producer charges different prices for different units of output of the same product for reasons other than differences in costs.

What is a monopoly?

A single firm in an industry with barriers to entry and no close substitute goods.

Assume that a market is operating in equilibrium. What would happen if the monopoly increased quantity produced but the price did not change? A. A surplus B. A shortage C. People would stop buying from the monopoly all together D. None of the above

A surplus

What is a reason that monopolies exist? A. A firm owns a resource that no one else has B. A firm is given legal protection that prevents another firm from entering C. A firm naturally drives out competitors through lower prices. D. All of the above are reasons

All of the above are reasons

How do you figure out the MR for a monopoly?

Change in Revenue/ Change in Quantity

A monopolist deciding to engage in price discrimination wants to keep the quantity produced the same (or close to the same) because which of the following is true? A. Revenue will automatically go down with price discrimination. B. Marginal revenue will be greater than price at that point. C. Costs will decrease with an increase in quantity. D. Costs will increase with an increase in quantity.

Costs will increase with an increase in quantity.

If a monopoly is currently selling 20 goods at a price of $10 each and it wants to sell 30 units, it needs to ______________ (increase / decrease / hold constant) the price for all goods it sells.

Decrease

In a natural monopoly as output increase what happens to average cost?

Decreases

A natural monopolist will face which of the following? A. The same costs a competitive industry faces B. Ownership of all of the sources of a natural resource C. Economies of scale D. Prices that are higher than average costs, while other monopolists will have average costs that are higher than prices

Economies of scale

If monopolies decrease the price for consumers then that is elastic or inelastic?

Elastic

Marginal revenue is only positive when demand is _______. A. Elastic B. Inelastic C. Neither elastic nor inelastic

Elastic

If a monopoly is producing where price is greater than average cost (and thus making a profit), more firms will enter the market (True / False).

False

Markets of perfectly competitive firms and monopolies both _________. A. Have barriers to entry B. Have downward sloping demand curves C. Are easy to enter and exit

Have downward sloping demand curves

The monopolist's economic profits will be ______________ than the total of the competitive firms' profits. A. Higher B. Lower C. The same

Higher

In the long run, a monopolist facing the same cost curves as a perfectly competitive firm will charge a ______________ price than the competitive market and produce a ______________ output. A. Lower; higher B. Lower; lower C.Higher; higher D. Higher; lower

Higher; lower

If monopolies increase the price for consumers then that is elastic or inelastic?

Inelastic

What do Patents and copyrights encourage for monopolies?

Innovation

If MR is positive, what does that say about elasticity?

It is elastic, as price decreases and output increases revenue is increasing.

Where will the monopoly produce?

It will produce where profits are maximized. (MR = MC)

What are some examples of barriers to entry for a monopoly?

Legal Barriers Rights granted to companies (Utility companies) Patents & Copyrights Economic Barriers Economic of scales (Natural monopolies) Large initial investments Control of a natural resource (Diamond Industry)

MR is ALWAYS ______ than PRICE for a monopoly.

Less

To sell more the firm decreases the price therefore, the MR must be what then the price?

Less

If P < AC at Quantity the firm is making a (loss/gain)?

Loss

If a monopoly wants to sell more of the good they must do what to the price?

Lower

In a monopoly what is the MR ___ P?

MR < P

When is profit maximized in a monopoly?

MR = MC

When does profit maximization occur in a monopoly?

MR > 0

When is a monopoly economically efficient?

MU1 / MC1 = MU2 / MC2

A profit-maximizing monopolist produces where marginal cost is equal to ________. A. Price B. Marginal revenue C. 0 D. The minimum

Marginal revenue

In a monopoly the individual firm's demand curve is the _______ demand curve.

Market

In a perfect competition the quantity is ____ than the quantity in a monopoly.

More

To sell less the firm increases the price therefore, the MR must be what then the price?

More

The Coca-Cola Company is the only producer of Coca-Cola. Is it considered a monopoly? A. Yes, it is the only firm with the recipe for a real Coca-Cola. B. Yes, because Coca-Cola has no close substitutes. C. No, because Coca-Cola has many close substitutes.

No, because Coca-Cola has many close substitutes.

Why do barriers to entry allow a monopolist to make positive economic profits? A. It causes the monopoly to have lower costs. B. Otherwise, firms would enter the market, resulting in a decrease in price and profits. C. It allows the monopoly to be price-takers. D. It does not need a barrier to entry because of the market demand.

Otherwise, firms would enter the market, resulting in a decrease in price and profits.

In a perfect competition P = MR which also means ______ in equilibrium. Firms are able to enter in the long run when P > MC.

P = MC

In a monopoly, P > MR , which also means ____in equilibrium. It stays this way b/c firms are unable to enter in LR.

P > MC

Figure out the MR of the problem: P1 = 1.01; Q1= 8; R1= 8.08 P2 = 1.00; Q2 = 9; R2= 9.00

P2 = 0.92 < 1

Marginal cost is always positive; therefore, marginal revenue at the profit-maximizing output will have to be ________. A. Negative B. Positive C. Equal to 0

Positive

What do barriers of entry allow firms to make a ? (Monopoly) (This causes other firms not being able to enter and drive down the price through competition.

Positive profit

How do you figure out the revenue for a monopoly?

Price x Quantity

What is the equation for where a monopoly will produce?

Profit = Revenue - Cost Profit = (P - AC) x Q

If a monopoly wants to sell less of a good, they must do what to the price?

Raise

What are some examples of price discrimination?

Senior discounts, student discounts

What are Barrier to entry?

Some factor that prevents firms from entering an industry when economic profits are being earned.

What happens in a monopoly when MR > MC?

The firm can produce more b/c revenue increases by more than cost would increase causing profits to increase.

What happens in a monopoly when MR < MC?

The firm should produce less bc revenue increases by less than cost would increase causing profits to decrease.

What can a monopoly do if there are two different types of customers w/ different levels of elasticity?

The monopoly can set prices for two different groups to earn even large monopoly profits.

T/F: If MC is positive then so is MR

True

T/F: MC is always positive in a monopoly

True

T/F: MR = MC is profit maximizing.

True

T/F: The average cost is below a demand curve in a natural monopoly.

True

T/F: Under a monopoly the firm is the sole producer.

True

T/F: Under perfect competition firms are called Price takers. (They produced all they wanted to sell at the market demand.)

True

T/F: In a natural monopoly a firm will continue to get larger until they drive out other small firms or merge with them to reduce their cost. As a result this causes what?

True, This cause no firms to enter and compete w/ the low costs a large firm faces.

What does it mean when a monopoly is economically efficient?

We are using the resources to produce what we want.

What is a natural monopoly?

When a monopoly can occur naturally, or experiences economies of scale.

A monopolist will engage in price discrimination, if it can, in order to increase profits by doing which of the following? A. By selling more of its goods B. By reducing costs for some of its products C. While continuing to produce the same amount D. While increasing prices for all consumers and producing less

While continuing to produce the same amount

In the long run, the monopolist ______________ (will/will not) produce a quantity where average cost is at a minimum, whereas the perfectly competitive firm ______________ (will/will not) produce that quantity. A. Will; will B. Will; will not C. Will not; will D. Will not; will not

Will not; will