ECON 2302 CHAPTER 12 REVIEW

What are the two legal barriers to entry created by the government?

-Licenses -Patents

Which of the following are conditions necessary for price discrimination?

-No resale -Monopoly power -Market segregation

Which of the following are potential solutions to the economic losses incurred by a regulated monopoly caused by socially optimal pricing?

-Price discrimination -Public subsidies

Which of the following are entry barriers created by monopolists?

-Price reductions -Increased advertising

If a firm is found guilty of achieving a monopoly through anticompetitive actions, then which of the following may occur?

-The firm may be expressly prohibited from engaging in certain business activities. -The firm may be broken into two or more competing firms.

A regulated monopoly is likely to suffer losses when ______.

-price is set to marginal cost (P = MC) -price is set to achieve the most efficient allocation of resources

Which of the following are assumptions made in the model of pure monopoly?

1. Patents, economies of scale, and resource ownership secure the firm's monopoly. 2.No unit of government regulates the firm. 3.The firm is a single-price monopolist and charges the same price for all units of output.

Which of the following does the monopolist not have?

A supply curve

Why might a monopolist accept a less-than-maximum per-unit profit?

Additional sales more than compensate for the lower profit per unit.

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

Barriers to entry

It is difficult to start up a major league sports team because existing professional teams have contracts with the best players and long-term leases on stadiums. Which barrier to entry does this illustrate?

Control of a key resource

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

Economies of scale

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

False

How does a monopoly generally transfer income?

From consumers to the owners of the monopoly

Which of the following are characteristics of public utilities?

Government owned or regulated Monopolies or near monopolies

If producing is preferable to shutting down, a profit-seeking monopolist will produce up to the output at which _______.

MR = MC

What may occur when only a single firm can achieve the economies of scale necessary to compete in an industry?

Natural monopoly

_________ effects exist if the value of a product to each user increases as the total number of users increase.

Network

If the objective of government is to achieve allocative efficiency, what kind of price should government establish for the monopolist?

One that is equal to its marginal cost.

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

Ownership of essential property

Which of the following are the main characteristics of a pure monopoly?

Presence of a single seller Control over the price Unavailability of close substitutes for its products Blocked entry for other firms

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

Price discrimination

________ utilities are government owned or regulated.

Public

Which of the following exists when a single firm is the sole producer of a product for which there are no close substitutes?

Pure monopoly

What is the term used to refer to a product's ability to satisfy a large number of consumers at the same time?

Simultaneous consumption

Which of the following explains why a pure monopolist is able to maintain an economic profit in the long run?

There are no new entrants to increase supply, drive down price, and eliminate profit.

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

When a firm produces a specific output level at a higher cost than the necessary cost for that level of output, it is called ______.

X-inefficiency

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

a decrease in total revenue

If the objective of government is to achieve _______ efficiency, it should establish a legal price for the monopolist that is equal to its marginal cost.

allocative

The government broke up Standard Oil in 1911 due to its breach of ________ laws.

antitrust

A monopolist does not achieve productive efficiency because it produces a level of output that does not correspond to the minimum point of the _______ cost curve.

average total

The monopolist's level of output is not at the minimum point of ______, meaning it will not be productively efficient.

average total cost

A monopolist does not have a supply curve because:

b) it does not equate price with marginal cost c) there is no single, unique price associated with each level of output

Two legal _____ to entry are patents and licenses.

barriers

Economies of scale refer to ______ average total costs with added firm size.

declining

With a natural monopoly the demand curve intersects the long-run average total cost curve where the long-run average total cost curve is still _______.

declining

Price makers are firms with:

downward-sloping demand curves

A natural monopoly may occur when only a single firm can achieve the ________of scale necessary to compete in an industry.

economies

The demand curve intersects the natural monopolist's long-run average total cost curve at a point where long-run average total costs are still falling, due to ______.

economies of scale

The monopolist wants a price-quantity combination to fall in the _____ section of its demand curve, where a lower price means _____ total revenue.

elastic; greater

___________ create(s) legal barriers to entry.

government

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

higher

As an example of price discrimination, airlines charge higher fares to business travelers whose demand for travel is _______and offer lower, more restricted fares to vacationers and others with more ____ demand.

inelastic, elastic

Government creates ________ barriers to entry.

legal

When a monopolist charges a higher price than a purely competitive firm would, the monopolist essentially ______.

levies a "private tax" on consumers

Firms with downward-sloping product demand curves are called price _____ .

makers

The change in total revenue associated with a one-unit change in output is called _______ revenue.

marginal

A(n) ______ is able to maintain an economic profit in the long run because there are no new entrants to increase supply, drive down price, and eliminate economic profit.

monopoly

Network effects may drive a market toward _______ , because consumers tend to choose standard products that everyone else is using.

monopoly

Patents, economies of scale, and resource ownership are all assumptions of the pure _______ model.

monopoly

Slashing prices is an example of an entry barrier created by a(n) _____.

monopoly

The main characteristics of a pure ______ are a single seller, no close substitutes, a price maker, blocked entry, and non-price competition.

monopoly

In general, as shown in the figure, a fair return price will lead to ______ and a socially optimal price will lead to ______.

normal profit; economic loss

The strongest barriers to entry effectively block all ______.

potential competition

Market segregation must exist in order for a monopolist to ______.

price discriminate

Baseball ticket sellers charge a different price for adults and children. Ballpark concession stands charge the same prices for products sold to any customer. The baseball ticket sellers are providing a successful example of

price discrimination

Two solutions to the economic losses caused by socially optimal pricing are providing public _______ and condoning price discrimination.

subsidy

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

substitutes

A natural monopoly's economies of scale refers to one firm's ability to achieve the lowest long-run average total cost, also known as

the minimum efficient scale at a high level of output.

Marginal revenue is the change in ______ revenue associated with a single-unit change in output.

total

The monopolist seeks maximum ______ profit, not maximum unit profit.

total