Economics Ch.7 Monopoly
For a monopoly, marginal revenue is always (greater or less) than price, after the first unit, because the firm must (raise or lower) its price to sell additional units.
less, lower
in a competitive industry situation, a new equilbirium is established wherein more of the desired produce is produced, its price is ________, and the economic profits ____________.
lower, will approach 0
The intersection of the marginal revenue and marginal cost curves establishes the:
marginal cost curve
In a competitive industry situation, high price and profit signal consumer's demand for:
more output
In a monopoly industry, high prices and profits signal consumers' demand for:
more output
In a competitive industry situation, the high profits attract:
new suppliers
Define barriers to entry:
obstacles that make it difficult or impossible for would-be producers to enter a market
Contestable market theory focuses on:
potential entry
Define Economies of Scale:
present average costs fall as the size of a plan and equipment increases
Monopolists are:
price setters, but competitive firms are price takers
Throughout the process of a competitive industry situation, there is great pressure to keep ahead by:
profit squeeze
In a monopoly industry, there is no squeeze on profits and thus no pressure to:
reduce costs
In a competitive industry situation, prices
slide down
What is predatory pricing?
temporary price reductions designed to drive out competition (American Airlines)
Which of the following rules is always satisfied when any firm (i.e. perfectly competitive or monopoly) maximizes profit?
MR = MC
Profit Maximization+++The monopolist produces where:
MR=MC
Which of the following is NOT a barrier to entry into a monopoly market?
a monopoly profits
List 4 barriers to entry:
1. patent protection 2. legal harassment 3. exclusive licensing 4. bundled products
Economies of scale:
Can be a cinvincing argument for allowing a monopoly to exist
True
T/F: Monopolists maximize profits at the output level where marginal cost equals marginal revenue
True
T/F: Patents, legal harassment and product bundling are all examples of barriers to entry in monopoly markets.
Monopolies tend to inhibit technology and innovation by keeping competition out of the market.
True
Suppose that a market is dominated by three firms. This type of market is known as:
an oligopoly
in a monopoly industry, production and supplies
are constrained
in a monopoly industry, barriers to entry
are erected to exclude potential competition
The price charged by a profit-maximizing monopolist occurs:
at a price on the demand curve above the intersection where MR=MC
A monopolist is typically able to enjoy economic profits in the long run because of:
barriers to entry
In the Headline article "Judge Says Microsoft broke Antitrust Law" in the text, which of the following practices was Microsoft found guilty of?
bundling products
In a monopoly industry, prices
do not move down the demand curve
Explain the difference in a duopoly and monopoly:
duopoly: is two businesses controlling the market monopoly: only one business controls the market
Which of the following is the unique characteristic of natural monopolies that other monopolies do not experience?
economies os scale occur over the entire range of market output
in a monopoly industry, no new equilibrium is ___________ an economic profits are _________.
established, at maximum
In a competitive industry situation, production and supplies
expand
In a monopoly, higher prices favor purchases by:
higher income consumers
For a monopolist, the demand curve facing the firm is:
identical to the market demand curve
Since a monopoly industry consists of only one firm, the firm is the:
industry
The marginal revenue of a monopolist:
is always less than price
A firm has market power when:
it faces a downward sloping demand curve, it must lower its price to sell an additional unit of output and its marginal revenue curve is below its demand (all the above)
