Econ Exam 3 (Monopoly)

Legal barriers and pros and cons

patents and copy right laws, benefit: encourages research and development cons: firms can charge a high price

17. Which of the following is not an example of a barrier to entry? Mighty Mitch's mining company owns a plot of land which lies on the only large deposit of tanzanite in the world An entrepreneur opens a popular new restaurant A pharmaceutical company obtains a patent for a specific high blood pressure medication A musician obtains a copyright for her original song

B

Price =

AR, greater than MR

structural barriers

Arise due to cost structure of industry, natural monopoly Cable company needs infrastructure like the cables that give a signal, high fixed costs (cables) but very small marginal costs doesn't cost much to provide service for additional person More efficient to have one firm service the market rather than multiple

18. A monopolist's average revenue is always Greater than the price of its product Equal to the price of its product Equal to marginal revenue Less than the price of its product

B

What are 3 differences between monopoly vs perfect competition

Monopoly can influence price, perfectly competitive firms cannot Monopolists faces the entire market demand curve, perfectly competitive firm faces horizontal demand curve Perfectly competitive firm can sell as much as its wants at a given price but a monopolist has to reduce its price to sell more output

When MR<MC

decrease output

Govt created monopolies

govt gives one firm exclusive right to sell or produce a good/service such as USPS, usually done for national security purposes

Under monopoly AR is greater or less than MR

greater

What are the barriers to entry

monopoly in resources, govt created monopolies, legal barriers, structural barriers

2. A natural monopoly is most likely to occur in which of the following industries? An industry where fixed costs are very large relative to marginal costs The diamond mining and marketing industry because one firm can control a key resource The pharmaceutical industry because the development and approval of drugs through the FDA can take more than ten years An industry where there are easy mergers of companies

A

3. If a theatre company expects $250,000 in ticket revenue from five performances and $288,000 in ticket revenue if it adds a sixth performance, the Cost of staging the sixth performance is probably higher than the cost of staging the previous 5 Marginal revenue of the 6th performance is 38,000 Marginal revenue is 288,000 Company will be making a loss on the sixth performance because its ticket sales will be less than average revenue received from the previous 5

B

4. If a monopolist marginal revenue is 50 per unit and its marginal cost is 35 then To maximize profit the firm should continue to produce the output it is producing To maximize profit the firm should increase output To maximize profit the firm should decrease output

B

1. A monopolist faces: A perfectly elastic demand curve A horizontal demand curve A downward sloping demand curve A perfectly inelastic demand curve

C

14. Compared to perfect competition, the consumer surplus in a monopoly Is higher because price is higher and output is the same Is unchanged because price and output are the same Is lower because price is higher and output is lower Is eliminated

C

19. A monopoly firm maximizes its profit by producing Q = 500 units of output. At that level of output, its marginal revenue is $30, its average revenue is $60, and its average total cost is $34. At Q = 500, the firm's profit is 17,000 30,000 15,000 13,000

D

20. The deadweight loss associated with a monopoly occurs because the monopolist Produces an output level greater than the socially optimal level Maximizes profits Equated marginal revenue with marginal cost Produces an output level less than the socially optimal level

D

What are the 4 characteristics of a monopoly

One firm Unique product Price Maker, control over price High barriers to entry

Monopoly in resources

diamond company owns all mines

What are 3 public policies towards monopolies

increase competition using antitrust laws( govt can break up companies), govt could regulate prices, public ownership of monopolies

When MR>MC

increase production