Chapter 12 - Final

Which of the following are conditions necessary for price discrimination? -Market segregation -No resale -Monopoly power -Advertising -Homogeneous market

-Market segregation -No resale -Monopoly power

The opportunity to engage in price discrimination is not readily available to all sellers. Price discrimination is possible when the following conditions are met:

-Monopoly power -Market segregation -No resale

Imperfect competitors include which of the following? -Oligopolists -Monopolistic competitors -Pure competitors -Pure monopolists

-Oligopolists -Monopolistic competitors -Pure monopolists

Three assummptions

-Patents, economies of scale, or resource ownership secures the firm's monopoly -No unit of government regulates the firm -The firm is a single-price monopolist; it charges the same price for all units of output

Which of the following are potential solutions to the economic losses incurred by a regulated monopoly caused by socially optimal pricing? -Price discrimination -Charging a price greater than MC -Public subsidies -tariffs -Quotas

-Public subsidies -Price discrimination

Which of the following can cause X-inefficiency? -highly effective supervision -desire for easier work life -poorly motivated work force -hiring the most qualified workers -an interest in lowering costs -hiring incompetent relatives

-desire for easier work life -hiring incompetent relatives -poorly motivated work force

Pure monopoly

A market structure in which one firm sells a unique product, into which entry is blocked, in which the single firm has considerable control over product price, and in which nonprice competition may or may not be found

Which of the following can increase profits by charging different prices to different buyers?

A monopoly

Blocked entry

A pure monopolist has no immediate competitors because certain barriers keep potential competitors from entering the industry. Those barriers may be economic, technological, legal, or of some other type. But entry is totally blocked in pure monopoly.

No close substitutes

A pure monopoly's product is unique in that there are no close substitutes. The consumer who chooses not to buy the monopolized product must do without it.

single seller

A pure, or absolute, monopoly is an industry in which a single firm is the sole producer of a specific good or the sole supplier of a service; the firm and the industry are synonymous

barrier to entry

Anything that artificially prevents the entry of firms into an industry.

Market segregation

At relatively low cost to itself, the seller must be able to segregate buyers into distinct classes, each of which has a different willingness or ability to pay for the product. This separation of buyers is usually based on different price elasticities of demand.

What is the term for factors that prohibit firms from entering an industry?

Barriers to entry

Which of the following describes why marginal revenue is less than price in an imperfect market?

Because the lower price of the extra unit of output also applies to all prior units of output

What is the difference in demand between a purely competitive seller and a monopolist?

Demand for the purely competitive seller is purely elastic, and demand for the monopolist is not.

What term is used to describe declining average total costs with added firm size?

Economies of scale

True or false: Price discrimination is always legal in the United States.

False

True or false: For a pure monopolist, total revenue increases at an increasing rate.

False; For a pure monopolist, total revenue increases at a diminishing rate

True or false: Price discrimination is not practiced very often in the US economy.

False; It is widely practiced in the US economy.

True or false: Network effects exist if the value of a product to each user decreases as the total number of users increases.

False; Network effects exist if the value of a product to each user increases as the total number of users increases.

Fair-return price

For natural monopolies subject to rate (price) regulation, the price that would allow the regulated monopoly to earn a normal profit; a price equal to average total cost.

___________ competitors can influence total supply through their own output decisions.

Imperfect

Network effects

Increases in the value of a product to each user, including existing users, as the total number of users rises.

What happens to total revenue when marginal revenue is positive?

It is increasing

How do economies of scale affect long-run average total costs for a firm?

Long-run average total costs decline over a wide range of output.

Which of the following can be a cause of extensive economies of scale?

Modern technology

Which of the following is considered a barrier to entry in an industry?

Ownership of essential property

What is the term used to refer to charging different buyers of a specific product?

Price discrimination

Considering the industry structures of pure (perfect) competition and pure monopoly, a firm will experience more inelastic demand curve in which form of industry?

Pure monopoly

Rent-seeking behavior

The actions by persons, firms, or unions to gain special benefits from government at the taxpayers' or someone else's expense.

What aspect of the market defines the crucial difference between a pure monopolist and a purely competitive seller?

The demand curve

The profit-maximizing monopolist will always want to avoid which segment of its demand curve?

The inelastic segment

No resale

The original purchaser cannot resell the product or service. If buyers in the low-price segment of the market could easily resell in the high-price segment, the monopolist's price-discrimination strategy would create competition in the high-price segment. This competition would reduce the price in the high-price segment and undermine the monopolist's price-discrimination policy. This condition suggests that service industries such as the transportation industry or legal and medical services, where resale is impossible, are good candidates for price discrimination.

Nonprice competition

The product produced by a pure monopolist may be either standardized (as with natural gas and electricity) or differentiated (as with Windows or Frisbees). Monopolists that have standardized products engage mainly in public relations advertising, whereas those with differentiated products sometimes advertise their products' attributes.

X-inefficiency

The production of output, wherever its level, at a higher average (and total) cost than is necessary for producing that level of output

Price maker

The pure monopolist controls the total quantity supplied and thus has considerable control over price; it is a price maker (unlike a pure competitor, which has no such control and therefore is a price taker). The pure monopolist confronts the usual downsloping product demand curve. It can change its product price by changing the quantity of the product it produces. The monopolist will use this power whenever it is advantageous to do so.

simultaneous consumption (nonrivalrous consumption)

The same-time derivation of utility from some product by a large number of consumers

Monopoly power

The seller must be a monopolist or, at least, must posses some degree of monopoly power, that is, some ability to control output and price

Price descimination

The selling of a product to different buyers at different prices when the price differences are not justifies by differences in cost.

How much will a profit-seeking monopolist produce if producing is preferable to shutting down?

Up to the output at which marginal revenue equals marginal cost

A monopolist will never choose a price-quantity combination where price reductions cause:

a decrease in total revenue

Governments also creates legal barriers to entry by...

awarding patents and licenses.

Two legal __________ to entry are patents and licenses

barriers

A monopolist can increase its profits by

charging different prices in different markets

Simultaneous ___________ is a product's ability to satisfy a large number of consumers at the same time.

consumption

Efficiency loss is also known as _________ loss.

deadweight

A natural monopoly occurs when the market demand curve crosses the long-run average total cost curve where average total costs (ATC) are still ____________.

declining

Firms with downward-sloping product ________ curves are called price __________.

demand; makers

Monopolist's demand curve

downslopeing (not elastic) Quantity demanded increases as price decreases

When productive efficiency and allocative efficiency are not achieved in a market, it is called

efficiency loss

Marginal revenue for the purely competitive seller is constant and ________ price, whereas for the pure monopolist it is not constant and reflects the necessity of ________ the price to sell more output.

equal to; lowering

Most regulatory agencies in the United States establish a(n) _________________-return price that a utility company is allowed to earn.

fair

X-inefficiency occurs when a firm operates at a cost, which is ___________ (higher/lower) than the lowest cost for a particular level of output.

higher

A firm can be expressly prohibited from engaging in certain business activities or can be broken into two or more competing firms when it

is found guilty of antitrust violations

Government creates __________ barriers to entry.

legal

When a fixed downward-sloping demand curve, the pure monopolist can only increase sales by charging a _________ price.

lower

In a pure monopoly, _________ is less than the price for every unit of output except the first.

marginal revenue

When marginal revenue is ________, (positive/negative) total revenue is diminishing.

negative

Imperfect competitors, by changing market supply, can influence product ___________.

price

Monopolists use economies of scale to block the entry of new firms into an industry by reducing ___________ so that firms cannot compete.

prices

What is it called when a firm spends significant money to maintain a monopoly through government legislation?

rent-seeking expenditures

A pure monopoly exists when a single firm is the sole producer of a product for which there are no close _________.

substitutes

Marginal revenue is the change in

total revenue