Chapter 15
The Department of Justice and the Federal Trade Commission use the HHI calculation for a market to evaluate proposed horizontal mergers. For example, if the post-merger HHI is below __________, then the market is not concentrated, so mergers in them are not challenged; however, at the other extreme, if the post-merger HHI is above _________, then the market is highly concentrated, and mergers that increase the HHI by 100 to 200 points may be challenged and mergers that increase the HHI by more than 200 points will likely be challenged. (Enter your responses as integers.)
1,500; 2,500
How long do patents last? A patent is the exclusive right to a product for a period of _____ years from the date the patent is filed with the government. (Enter your response as an integer.)
20
Suppose 14 units of output are supplied in the market. How much lower is the average total cost of production for one firm compared to two firms? One firm can supply 14 units of output for $_______ less per unit in average total cost than two firms. (Enter your response as an integer.)
3
Who is in charge of enforcing them?
Both a and b. -The Federal Trade Commission. -The Antitrust Division of the U.S. Department of Justice.
Describe a monopoly's demand curve. A monopoly's demand curve
is the same as the demand curve for the product.
Which are more economically efficient, perfectly competitive markets or monopolies? Compared to monopolies, perfectly competitive markets are
more economically efficient because they result in more economic surplus.
What are the four most important ways a firm becomes a monopoly? The four main reasons a firm becomes a monopoly are:
the government blocks entry, control of a key resource, network externalities, and economies of scale.
What is the government's policy on collusion in the United States? Explain the rationale for this policy. In the United States
the government makes collusion illegal with antitrust laws because monopolies create deadweight loss
A monopolist is a price maker because
when a monopolist raises its prices, it loses some but not all customers.
A form of market structure studied by economists is monopoly. When is a firm a monopoly, or are monopolies only theoretical concepts that do not exist?
A firm is a monopoly if it can ignore other firms' prices.
What is the definition of monopoly?
A monopoly is a firm that is the only seller of a product in a given industry.
Governments often have the potential to influence whether firms are monopolies. How might the government affect whether a firm is a monopoly? The government could
Grant a firm a public franchise, making it the exclusive legal provider of a good or service.
Is the loss in efficiency due to market power large or small? Explain. The loss in efficiency due to market power is
Small, because competition limits market power, even when the market is not perfectly comparative OR small because firms with substantial market power are rare
What is a monopoly? A monopoly is
a firm that is the only seller of a good or service that does not have a close substitute.
Give an example of a public franchise and an example of a public enterprise. An example of a public franchise is
a firm that is the sole, government-designated provider of electricity, and an example of a public enterprise is the government directly providing water.
The Department of Justice and the Federal Trade Commission must define the relevant market when determining whether to allow a merger. How do economists identify the relevant market? The relevant market has been identified if
a price increase results in higher profits; otherwise, the market is too narrow.
To have a monopoly, barriers to entering the market must be so high that no other firms can enter. Do network externalities create or remove barriers to entry? Explain. Network externalities
create barriers to entry because if a firm can attract enough customers initially, it can attract additional customers as its product's value increases by more people using it, which attracts even more customers.
What happens if a perfectly competitive industry becomes a monopoly? Suppose the demand curve in the figure is market demand and the corresponding market supply curve represents the marginal cost of production. Compared to perfect competition, a profit-maximizing monopoly would ________________ output by ___________ units. (Enter your response as an integer.) In addition, a monopoly would ___________ price by $_______.
decrease; 2 increase; 2
What effect might market power have on technological change? Market power results in
economic profits that can be spent on research to develop new products.
Many firms might like to be monopolies because such firms earn economic profits in the long run. What might cause a monopoly? A firm is likely to be a monopoly if
economies of scale are so large that one firm has a natural monopoly.
Suppose that a monopoly becomes a perfectly competitive industry. As a result, consumer surplus will_____________; producer surplus will _____________; and deadweight loss will _____________.
increase; decrease; decrease
The figure to the right illustrates market demand for a monopoly along with its average total cost (ATC) curve. Is the monopoly a natural monopoly? The firm
is a natural monopoly because it can supply the entire market at lower average total cost than can two or more firms.
For many years, the Aluminum Company of America (Alcoa) essentially operated as a monopoly. What made this company a monopoly? The Aluminum Company of America left parenthesis Alcoa right parenthesisThe Aluminum Company of America (Alcoa) was essentially a monopoly because
it had almost exclusive control of the world's supply of bauxite, used to make aluminum
For many years, the International Nickel Company of Canada essentially operated as a monopoly. What made this company a monopoly? The International Nickel Company of CanadaThe International Nickel Company of Canada was essentially a monopoly because
it had almost exclusive control of the world's supply of nickel, used to make nickel products
What is the purpose of the antitrust laws? Antitrust laws are intended to
make illegal any attempts to form a monopoly or to collude.
Why does the government issue patents? The government issues patents
to encourage firms to spend money on the research and development necessary to create new products.