chapter 16 monopoly
natural monopoly
a monopoly that arises because one firm can meet the entire market demand at a lower average total cost than two or more firms could
Marginal cost pricing rule
a rule that sets price equal to marginal cost to achieve an efficient output
Monopoly arises when a barrier to entry exists, but the good has some close substitutes.
false
Monopoly arises when a firm can sell any quantity it chooses at the going price.
false
Monopoly arises when a skating rink offers discounts to students and seniors.
false
A monopoly that price discriminates ______.
gains because it converts consumer surplus to economic profit
A single-price monopoly maximizes profit by producing the quantity at which ______.
marginal revenue equals marginal cost and setting the price equal to the most people are willing to pay for that quantity
example of a price cap regulation
A government regulation has forced cable TV operators to lower the price of cable TV from $55 a month to $30 a month.
A monopoly that can perfectly price discriminate has a marginal revenue curve that is steeper than the demand curve for the good that the monopoly produces.
false
Monopoly arises in the hybrid SUV market when Ford cuts its price below that of Toyota to increase profit.
false
A single-price monopoly is ______.
inefficient because it produces too small an output and creates a deadweight loss
A firm is a natural monopoly if
it can satisfy the market demand at a lower average total cost than other firms can
Which of the following firms is most likely to be a monopoly?
local distributor of electricity
Perfect price discrimination
price discrimination that extracts the entire consumer surplus by charging the highest price that consumers are willing to pay for each unit
If a monopoly can perfectly price discriminate, it produces no deadweight loss and is more efficient than a single-price monopoly.
true
Monopoly arises when a firm experiences economies of scale even when it produces the quantity that meets the entire market demand.
true
Monopoly arises when a single firm, protected by a barrier to entry, produces a personal service that has no close substitutes.
true
A profit-maximizing monopoly never produces output in the _______ range of its _______ curve.
inelastic; demand
Rate of return regulation
A regulation that sets the price at a level that enables a firm to earn a specified target rate of return on its capital.
Average cost pricing rule
A rule that sets price equal to average total cost to enable a regulated firm to avoid economic loss.
example of a single-price monopoly
DeBeers sells diamonds of the same quality to all its customers at the same price.
example of a price-discriminating monopoly
IMAX charges $6 per movie ticket for children younger than 8, and $8.50 per movie ticket for adults.
example of regulation
The Surface Transportation Board influences the prices on interstate railroads.
example of deregulation
The quota on milk production has been lifted by the Common Agricultural Policy of the EU.
Capture theory
The theory that the regulation serves the self-interest of the producer and results in maximum profit, under-production, and deadweight loss.
barrier to entry
any constraint that protects a firm from competitors
Governments regulate natural monopoly by capping the price at _______.
average total cost, which allows the monopoly to be inefficient but make zero economic profit
A firm that experiences economies of scale even when it produces the quantity that meets the entire market demand is an example of a natural monopoly.
True
When natural or legal forces work to protect a firm from potential competitors, the market is said to have _______.
a barrier to entry
Regulation that results in the efficient output and price is _______.
a marginal cost pricing rule
Monopoly
a market in which one firm sells a good or service that has no close substitutes and a barrier blocks the entry of new firms
legal monopoly
a market in which competition and entry are restricted by the granting of a public franchise, government license, patent, or copyright
A price cap regulation is often combined with _______ in case the regulator sets the cap too high.
earnings sharing regulation
A single firm, protected by a barrier to entry, produces a personal service that has no close substitutes. This is an example of ______.
either a natural monopoly or a legal monopoly that can price discriminate
A monopoly sets its price such that demand for the good produced is ______.
elastic
A monopoly ______.
that produces a good that cannot be resold might choose to price discriminate
Rent seeking
the lobbying for special treatment from the government to create economic profit or to divert consumer surplus or producer surplus away from others
Social interest theory
the theory that regulation achieves an efficient allocation of resources