Econ Chapter 12
Which of the following statements is true?
An increase in consumer demand can change a natural monopoly into a multi-seller market.
Which of the following statements is true?
Network effects act as barriers to entry in a market.
Which of the following statements is true?
Under monopoly, prospective buyers may not be able to buy a good even if they have a willingness to pay above marginal costs.
The Department of Justice filed a lawsuit against Microsoft claiming it was engaging in unfair practices by ____________.
monopolizing the market by bundling its operating system with its Internet Explorer browser.
If a monopoly engages in first-degree price discrimination:
social surplus is maximized.
Scenario: When a monopolist charges $5 for its product, it sells 250 units of the product. When it decreases the price of the product to $4, it sells 325 units of the product. Refer to the scenario above. What is the price effect of the price change?
$250
Scenario: When a monopolist charges $5 for its product, it sells 250 units of the product. When it decreases the price of the product to $4, it sells 325 units of the product. Refer to the scenario above. What is the quantity effect of the price change?
$300
Suppose you are a monopolist, and you have two customers, A and B. Each will buy either zero or one unit of the good you produce. A is willing to pay up to $45 for your product; B is willing to pay up to $10. You produce this good at a constant average and marginal cost of $5. If you could not engage in third-degree price discrimination, what price would you charge?
$45.
Which of the following statements is true?
A monopoly is a price maker because it faces a downward sloping demand curve
Which of the following statements correctly differentiates between a monopoly and a perfectly competitive firm?
A perfectly competitive firm sets its product price at its marginal cost, whereas a monopoly sets the price above its marginal cost.
Suppose the government grants an individual or company the exclusive right to intellectual property. In this case, the government is granting a copyright. Which of the following is not likely covered by a copyright?
A photocopier.
Which of the following is an example of a good produced under perfect competition?
Corn
Which of the following statements is true?
Firms in a market with no entry barriers are likely to have less market power than firms in a market with entry barriers.
Sellers in which of the following market structures are likely to have the highest market power?
Monopoly
Which of the following is not one of the sources of natural market power?
Owning a firm in a small community.
The pricing rule for a monopolist is:
P > MR = MC.
The effect of the invisible hand is likely to be the strongest under which market structure?
Perfect competition
Which of the following market structures provides socially efficient outcomes?
Perfect competition
Which of the following is not a characteristic of monopoly?
Produces identical goods
Which of the following statements correctly identifies a similarity between monopoly and perfect competition?
Production is expanded until marginal revenue equals marginal cost in both the market structures.
Which of the following equations calculates economic profits for a monopoly?
Profits = (P - ATC) x Q
Which of the following statements is true?
The basis for both first-degree price discrimination and third-degree price discrimination is differences in the buyers' willingness to pay for a good.
At a certain level of production, the marginal revenue and marginal cost of a monopolist are $12 and $10, respectively. Which of the following statements is true in this context?
The monopolist should expand production.
At a certain level of production, the marginal revenue and marginal cost of a monopolist are $8 and $6, respectively. Which of the following statements is true in this context?
The monopolist should expand production.
Scenario: When a monopolist charges $5 for its product, it sells 250 units of the product. When it decreases the price of the product to $4, it sells 325 units of the product. Refer to the scenario above. What is the change in total revenue due to the price reduction?
The total revenue increases by $50.
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 waxedpaper, 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 satelliteradio; 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.
An industry is deemed concentrated when ___________.
a few firms account for a large fraction of total sales in that industry
A market in which a firm emerges as a monopoly due to large economies of scale is referred to as:
a natural monopoly.
When compared to a perfectly competitive industry, in a monopoly:
both consumer surplus and social surplus are smaller.
Compared to a firm under perfect competition, a monopolist:
charges more and produces less.
A musician was guaranteed by the government that no one else could replicate or sell his music CDs. This is an example of a:
copyright
The price chosen by a monopolist:
is independent of the production of other firms.
When a monopolist sells positive levels of output, its demand curve:
lies above its marginal revenue curve.
Everything else remaining unchanged, if a new seller enters a market to compete with an existing monopoly that is enjoying economies of scale, it will lead to:
lower profits for the existing firm
At the profit-maximizing level of production of a monopolist, ____________.
marginal revenue equals marginal cost
Economies of scale in production act as a source of:
natural market power.
If a monopolist owns or controls a key resource necessary for production, it is a source of:
natural market power.
Some economists believe the threat of unfair monopolies is greater today than when the Sherman Act was first enacted. They argue that modern software can gain monopoly status and establish a barrier to entry through ____________.
network externalities.
A _________ is the privilege granted to an individual or company by the government, which gives them the sole right to produce and sell a good.
patent
Greenaqua Corp. was given the exclusive right to produce and sell its newly introduced water purifier for 20 years. The right granted to Greenaqua is an example of a:
patent
When firms charge different prices to different consumers for the same good or service, it is referred to as ________.
price discrimination
In comparison to firms in other market structures, monopolists:
produce goods that do not have close substitutes.
Buyers who buy in bulk are often offered discounts. This is an example of:
second-degree price discrimination
Average total cost decreases with an increase in output because:
the average fixed cost decreases with an increase in output.
A monopolist faces an average total cost of $6 when it produces 200 units of its product. If it sells the 200 units at $8 per unit, ________.
the monopolist makes a profit of $400
A network externality refers to a situation where:
the value of a product increases as more consumers start to use it.
In recent years, some online firms have offered different consumers different prices for the same good. These firms use the consumer's IP address to find what city they are in and then charge a higher price to people in wealthier cities. This type of pricing behavior is ____________.
third-degree price discrimination
