ECON 110 - Ch. 15: Monopoly Power

If this market is monopolized, the resulting deadweight loss is approximately

A. $60.

What area measures the deadweight loss in this monopolized market?

A. 0.5*(B-F)*(L-K)

The Department of Justice must decide whether cell phone giants T Mobile and Sprint can merge into a single company. Suppose they find the following facts. Which fact would indicate that the combined company will have monopoly power but could still improve market efficiency?

A. Cell phone firms have large economies of scale.

Suppose that monopolistically competitive firms in a particular market are earning a negative profit. In the transition from this initial situation to the long-run equilibrium,

A. Each firm still in the market faces greater demand.

Which of the following is an example of a barrier to entry?

A. John obtained a copyright for the song he wrote and recorded.

The graph depicts a monopolistically competitive firm in the short run. Which of the following explanations best describes the long run adjustment?

A. More firms will enter this market and each firm will have a smaller share of the total market demand, shifting this firm's demand curve to the left.

Suppose the Department of Justice suspects that Google (which makes its money by selling advertising) is a monopolist in internet advertising. Which of the following would not support their case?

A. Whenever Google has incurred more costs to expand their operations, these costs have been fully passed on to their advertising customers.

Which of the following statements is correct? Monopolies are socially inefficient because they...

A. charge a price above marginal cost. & B. produce too little output.

Joe's Juice Shop operates in a monopolistically competitive market. Joe's is currently producing where its average total cost is minimized. In the long run we would expect Joe's output to

A. decrease and average total cost to increase.

Firms in an oligopoly often earn less profits than a monopolist would. This is because oligopoly firms

A. engage in price wars to steal each other's customers.

Economies of scale act as a barrier to entry because

A. one large firm can supply the market at a lower average cost than many small firms could

Collusion between oligopolists will always include

A. risk that one of the oligopolists will cheat on their output.

A similarity between monopoly and monopolistic competition is that, in both market structures,

A. sellers have some control over the price of their product.

In an oligopolistic market, attempts at collusion are considered inefficient because

A. the cartel will have deadweight loss like a monopoly and possibly higher cost of production.

When regulating the price of a monopolist, one advantage of marginal cost pricing (compared to average cost pricing) is that

A. the deadweight loss is eliminated.

Compared to Perfect Competition, an industry with Monopolistic Competition will have

A. zero long run profit, but prices will be somewhat higher.

The deadweight loss from this monopoly would be:

B. $1250

Which of the following statements is correct for a monopolist? (i) The firm maximizes profits by equating marginal revenue with marginal cost.(ii) The firm maximizes profits by equating price with marginal cost.(iii) Demand equals marginal revenue.(iv) Average revenue equals price.

B. (i) and (iv) only

Which of the following statements is correct for a monopolist?(i) The firm maximizes profits by equating marginal revenue with marginal cost.(ii) The firm maximizes profits by equating price with marginal cost.(iii) Demand equals marginal revenue.(iv) Average revenue equals price.

B. (i) and (iv) only

This monopolist's marginal revenue of selling the 3rd unit is:

B. 50.

Suppose Dominion Energy is behaving as a monopolist in the natural gas market. An economist notes that compared to a year ago, Dominion Energy has been earning less profit, selling less gas, and at a lower price. This observed outcome is consistent with

B. A decrease in the demand for natural gas.

All of the following conditions, except one, must exist in order for a firm to successfully practice price discrimination. Which is the exception?

B. The good being sold must be heterogeneous compared to other firms' output.

A firm in a market characterized by oligopoly must

B. have a strong impact on its competitors profits.

Monopolistic competition is an inefficient market structure because

B. it has a deadweight loss, just as monopoly does.

If government regulation sets the maximum price for a natural monopoly equal to its average cost, then the natural monopolist will

B. produce a lower quantity of output than is socially optimal.

A firm that price discriminates will lower their price for some customers because

B. this increases the volume of sales by more than the price reduction.

The monopolist's marginal revenue from selling the second unit of output is

C. $14.

Suppose Wakanda behaves as a monopoly in the vibranium market. Which of the following changes would always cause Wakanda to increase their output and lower their price?

C. A decrease in the marginal cost of processing their vibranium.

Which of the following statements would indicate that the market for breakfast cereals is not monopolistically competitive?

C. Buyers see all cereals as essentially interchangeable.

The prescription pain medication Lyrica loses its patent protection this year. Suppose that in the coming years, we don't see any change in the price or profits of Lyrica's manufacturer, Pfizer. What might explain this?

C. Customers already had substitutes among many differentiated pain medications, so the mar-ket was already at its long run equilibrium.

Suppose when a monopolist produces 75 units its average revenue is $10 per unit, its marginal revenue is $5 per unit, its marginal cost is $6 per unit, and its average total cost is $5 per unit. What can we conclude about this monopolist?

C. The monopolist can increase its profits by raising its price.

Which of the following examples illustrates an oligopoly market?

C. a city with two firms who are licensed to sell school uniforms for the local schools

Suppose a city government gives exclusive license to Waste Management for trash collection, but regulates them to use average cost pricing. If trash collection has economies of scale then Waste Management will ___________, but this does not occur if it has diseconomies of scale.

C. charge more than marginal cost

One difference between oligopoly and perfect competition is that, in the latter,

C. each firm faces perfectly elastic demand.

The US Government is willing to grant patents to firms, even though they will be used as barriers to entry. This can be efficient because

C. firms will develop more products in pursuit of monopoly profits.

Suppose that a scientific study reports that orange foods are more likely to cause cancer, which causes demand to permanently decrease, similarly in orange juice (treat as perfectly competitive) and Cheetos (treat as monopolized).

C. in the short run only.

Suppose a monopolistic competitive market is in long run equilibrium, and then all firms' fixed cost increases. In the short run, we can predict that all firms will ___________; in the long run, we can predict that some firms will _________.

C. maintain their output; exit the market.

Suppose a monopolist is able to reduce his fixed costs. To maximize his profits after this reduction in costs, he will

C. not change price or quantity.

A firm cannot price discriminate if it

C. operates in a competitive market.

Additional firms often do not try to compete with a natural monopoly because

C. they cannot achieve the same low costs that the natural monopolist enjoys.

The purpose of a cartel is

C. to mimic monopoly behavior as a group.

What is its maximum profit in the short run?

D. $30

Which of the following is a characteristic of a natural monopoly?

D. A & B A. Average cost exceeds marginal cost over large regions of output. & B. One firm can supply output at a lower cost than two firms.

Which of the following statements is correct? Monopolies are socially inefficient because they

D. A & B A. charge a price above marginal cost. & B. produce too little output.

Which of the following correctly distinguishes between natural monopoly versus other barriers to entry?

D. A natural monopoly excludes competitors using cost structure rather than legal rules.

Which is an accurate comparison of an Oligopoly versus a Monopoly market?

D. An oligopoly has strategic interaction among firms, while a monopoly acts independently.

Suppose the cloud file storage market initially has many firms, but over time, it consolidates into a single provider. The best evidence that this transition occurred due to monopoly power would be:

D. The single firm has a significantly lower average cost of provision than the broader market did.

Monopolistic competitive firms in the long run experience excess capacity, which is graphically reflected as the

D. average cost being above its minimum.

One key difference between an oligopoly market and a competitive market is that oligopolistic firms

D. can affect the profit of other firms in the market by their choices, while choices of firms in competitive markets have negligible effect on one another.

Price discrimination allows a monopolist to earn greater profit by

D. exploiting differences in the demand elasticity of various consumers.

Suppose a concert producer acts as monopolist in selling tickets. For each concert, he sells 2000 tickets at $50 per ticket. His average variable cost is $45 per ticket, his marginal cost and marginal revenue are $30 per ticket, and his total fixed cost is $20,000. For those concerts where he has already paid this fixed cost, the monopolist will _______, while in the long run, he will _______.

D. offer exactly 2000 tickets for sale; exit the industry.

A monopolized market will be inefficient because

D. selling to more people requires lowering the price for everyone.

France regulates the price that its train system can charge, requiring marginal cost pricing. One disadvantage (from the public's perspective) of this form of regulation is that

D. the train system will regularly suffer losses, and France would have to subsidize them.

A profit-maximizing monopolist will always want their price to

D. to be greater than marginal revenue, which equals marginal cost.

Suppose Jim Gaffigan (a comedian) has a unique comedic style (often about food) that gives him monopoly power over his performances. If the public becomes more enthused about his food comedy, we can predict

E. A & C

MegaCorp is accused of behaving like a monopoly. Which of the following would be the best evidence to disprove the claim?

E. MegaCorp charges a price equal to its marginal cost of production.

What price will this monopolist charge?

F. $120