Monopoly homework
If a profit maximizing monopolist sells 80 paintings at a price of $2,000 each, having bought them from various artists for a total cost of $88,000, the monopolist has a profit of ?
72,000
According to the Copyright Act of 1790, a copyright's life was limited to 28 years, including extensions. Today, copyrights are valid for the entire period of the author's life plus another 70 years. A copyright for a book that was published before 1923 is likely to have expired by now, but books published after 1923 are still under copyright protection. Research has shown that, of all the books that are in print today, a larger proportion were published before 1923. This is despite the fact that the number of books being published every year has been steadily increasing. What do you think could explain the fact that most of the books available today are from the period before 1923?
A copyright gives the owner an exclusive right to a piece of intellectual property, thus allowing them to act as a monopoly. Monopolists typically reduce quantity supplied to drive up the price of the good that they produce
Which of the following statements are true regarding a monopoly? A. The price chosen by the firm is the one that helps the firm earn the highest profit. B. The demand curve faced by a firm has a negative slope. C. The firm's equilibrium long-run profit is zero. D. The seller is concerned with the behavior of the other sellers.
A. The price chosen by the firm is the one that helps the firm earn the highest profit. B. The demand curve faced by a firm has a negative slope.
Which of the following statements are true regarding perfect competition? A. The price of a good is equal to its marginal cost. B. There are significant restrictions on entry into the industry. C. The firms are price takers earning zero profits in the long-run. D. There are few firms each selling an identical product.
A. The price of a good is equal to its marginal cost. C. The firms are price takers earning zero profits in the long-run.
Which of the following are properties of a monopoly? A. There is only one seller. B. Price-taker. C. Price-maker. D. There are high barriers to entry. E. There are a few close substitutes for the goods and services produced.
A. There is only one seller. C. Price-maker. D. There are high barriers to entry.
People who need life-saving drugs cannot do without them and surely will be willing to pay very high prices for them. So why can't producers of life-saving drugs charge any price that they wish to?
A monopolist, such as one selling life-saving drugs, still faces downward-sloping demand curves.
Both competitive firms and monopolies produce at the level where marginal cost equals marginal revenue. Then, other things remaining the same, why is price lower in a competitive market than in a monopoly?
Competitive markets face perfectly elastic demand and marginal revenue, while monopolies face downward-sloping demand and marginal revenue.
All of the following statements about the monopolist's demand curve are true except: If the price is above the mid-point of the demand curve, the quantity effect dominates. B. If the quantity effect dominates, lowering price increases revenue. C. If the price effect dominates, lowering price increases revenue. D. If the price is below the mid-point of the demand curve, the price effect dominates.
If the price effect dominates, lowering price increases revenue.
Which of the following is a key difference between perfect competition and monopoly?
In perfect competition, no one firm can influence price, but with monopoly, a single seller sets the price.
Why is electricity generation better off as a natural monopoly?
Industries like electricity generation experience economies of scale since they have high fixed costs. Thus, it is cheaper to have a single firm provide a larger quantity.
How does a natural monopoly differ from a firm that becomes a monopoly due to network effects?
Natural monopolies result from economies of scale, while network effects come from the benefits to consumers from having many people use a service.
Edgar says that a single firm in the wind power industry is unlikely to have a significant degree of monopoly power for an extended period of time. Since the cost of producing an additional unit of wind energy is so low, a large number of firms can enter the market and compete away economic profits. Do you agree with this analysis?
No, Edgar's argument ignores potentially large fixed costs that will act as a barrier to entry
Janet knows a lot of people who do not like Marmite®, a yeast extract that is used as a spread on toast. She says that Marmite is so unpopular that Unilever, the company that manufactures Marmite®, cannot possibly have any monopoly power. Do you agree with this analysis?
No, monopoly power is based on whether a good has any close substitutes, not whether your friends like the product.
A significant difference between monopolies and competitive firms is that
a monopoly's demand curve is the industry's demand curve, while the competitive firm's demand curve is perfectly elastic.
A monopolist should continue to increase production until marginal
cost is equal to marginal revenue.
When a firm exercises its monopoly power, the cost to society is the
deadweight loss
Monopolists do not use a supply curve because they
do not vary production based on market price.
By forcing monopolists to set price equal to marginal cost,
economic loss can occur.
First degree price discrimination
eliminates deadweight loss by producing to where marginal cost equals price.
The case for a natural monopoly is characterized by high ; costs and decreasing ; costs.
fixed; average
if a monopoly selling 300 computers at $3,000 decides to lower its price to $2,000 in order to sell 100 more computers, then the firm
has negative marginal revenue.
When compared to competition, monopoly prices are ? and quantity produced is ? The purpose of antitrust policy is to ? this situation.
higher; lower; reverse
Eliminating a monopoly
increases market quantity
Network externalities and economies of scale both can contribute to the formation of a monopoly. However, they differ in that network externalities deal with
increasing benefits and economies of scale deal with decreasing costs
A monopoly is selling workbooks to students in a college town and is currently maximizing profits by charging $70.00 per book. The marginal cost of textbooks
is less than $70
For a monopolist, total revenue ; calculated the same way as in perfect competition; marginal revenue ; equal to price.
is; is not
hen a firm exercises its monopoly power, social surplus is ? when compared to a perfectly competitive market.
lower
compared to a perfectly competitive market, consumer surplus is ? producer surplus is ? and deadweight loss is ?
lower; higher; higher
Natural market power is created by ___________, and arises due to ____________.
market forces; controlling a key resource
An example of an industry or service that is a natural monopoly is ____________.
national defense
A monopoly has ; and ; Price is set ; marginal cost.
one seller; many buyers; greater than
Total revenue for a monopolist is maximized
only if marginal revenue is 0
If Nike developed a particularly strong weave to the fabric used in their running shoes, they could petition the government for a ; in order to protect their profits. If a competitor tried to promote their brand of running shoes by using Nike's theme song in their commercial, Nike could sue for ; infringement.
patent; copyright
All of the following describe a monopoly market structure, except:
seller is a price taker
Legal market power is created by ___________, and arises due to ____________.
the government; patents
In reality, practicing price discrimination is difficult because:
the monopolist doesn't know each consumer's willingness to pay.
A social planner would choose the same outcome as that which results in ? equilibrium, because that outcome ? social surplus.
the perfectly competitive; maximizes
To say that a good has network effects means that the ____________.
value of the product increases as more people use it.
Market power relates to the ability of sellers to affect __________, and arises because of ____________.
prices; barriers to entry.
