ECON 2302 Test 3 Ch. 15

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The deadweight loss associated with a monopoly occurs because the monopolist

produces an output level less than the social optimal level

A monopolist can sell 200 units of output for $36 per unit. Alternatively, it can sell 201 units of output for $35.50 per unit. The marginal revenue of the 201st unit of output is

$-4.20

Monopolies are inefficient because they (i) eliminate barriers to entry (ii) Price of their product at a level where marginal revenue exceeds marginal cost (iii) Restrict output below the socially efficient level of production

(iii)

Round trip airplane tickets are usually cheaper if you stay over a Saturday night before you fly back. What is the reason for this price discrepancy?

-Airlines are practicing imperfect price discrimination to raise profits -Airlines charge a different rate based on the different nature of peoples travel needs -Airlines are attempting to charge people based on their willingness to pay

Patents, copyrights, and trademarks

-Are examples of government-created monopolies -are examples of barriers to entry -Allow their owners to charge higher prices

Which of the following is a characteristic of a natural monopoly? Part 2

-Average cost exceeds marginal cost over large regions of output -Increasing the number of firms increasing each firm's average total cost -One firm can supply output at a lower cost than two firms

Patent and copyright laws encourage

-Creative activity -Research and development

Antitrust laws allow the government to

-prevent mergers -break up companies -promote competition

A movie theater can increase its profits through price discrimination by charging a higher price to adults and a lower price to children if it

All of the above

Which of the following is a characteristic of a natural monopoly?

Average total cost declines over large regions of output

Which of the following is not a characteristic of a monopoly?

One buyer

For a monopoly firm, which of the following equalities is always true?

Price= average revenue

For a monopoly, the socially efficient level of output occurs where

average revenue equals marginal cost

A firm that the sole seller of a product without close substitutes is

a monopolist

Monopolies are socially inefficient because the price they charge is

above marginal cost

For a monopoly,

average revenue exceeds marginal revenue

A fundamental source of monopoly market power arises from

barriers to entry

A monopoly market is characterized by

barriers to entry

Antitrust laws allow the government to...

break up companies

The social cost of a monopoly is equal to its

dead weight loss

The socially efficient level of production occurs where the marginal cost curve intersects

demand

The market demand curve for a monopolist is typically

downward sloping

Perfect price discrimination

eliminates dead weight loss

Price discrimination explains why Ivy league universities often base tuition costs on students

financial resources

In order to sell more of its product, a monopolist must

lower its price

A monopoly firm is a price

maker and has no supply curve

Marginal revenue can become negative for

monopoly firms but not for competitive firms

Which of the following is not a reason for the existence of a monopoly?

of scale

Financial aid to college students, quantity discounts, and senior citizen discounts are all examples of

price discrimination

The practice of selling the same goods to different customers at different prices, but with the same marginal cost, is know as

price discrimination

When a monopolist is able to sell its product at different prices, it is engaging in

price discrimination

Most markets are not monopolies in the real world because

there are reasonable substitutes for most goods


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