Microecon Chapter 15: Monopoly

Monopoly

A firms that is the sole seller of a product without close substitutes

Natural Monopoly

A monopoly that arises because a single firm can supply a good or service to an entire market at a smaller cost than could two or more firms

Perfect Price Discrimination

A situation in which the monopolist is able to charge each customer precisely his willingness to pay

Price Discrimination

The business practices of selling the same good at difference prices to different customers

Arbitrage

The process of buying a good in one market at a low price and selling it in another market at a higher price

If marginal revenue exceeds marginal cost, a monopolist should a. increase output b. decrease output c. keep output the same because profits are maximized when marginal revenue exceeds marginal cost. d. raise the price.

a. increase output

A monopolist maximizes profit by producing the quantity at which a. marginal revenue equals marginal cost b. marginal revenue equals price c. marginal cost equals price d. marginal cost equals demand e. non of the above occurs.

a. marginal revenue equals marginal cost

Public ownership of natural monopolies a. tends to be inefficient b. usually lowers the cost of production dramatically c. creates synergies between the newly acquired firm and other government-owned companies d. does none of the above

a. tends to be inefficient

Compared to a perfectly competitive market, a monopoly market will usually generate a. higher prices and higher output b. higher prices and lower output c. lower prices and lower output d. lower prices and higher output

b. higher prices and lower output

The purpose of antitrust laws is to a. regulate the prices charged by a monopoly b. increase merger activity to help generate synergies that reduce costs and raise efficiency c. create public ownership of natural monopolies d. do all of the above

b. increase merger activity to help generate synergies that reduce costs and raise efficiency

A firm whose ATC continually declines at least to the quantity that could supply the entire market is known as a a. perfect competitor b. natural monopoly c. government monopoly d. regulated monopoly

b. natural monopoly

A monopoly is able to continue to generate economic profits in the long run because a. potential competitors sometimes don't notice the profits. b. there is some barrier to entry to that market. c. the monopolist is financially powerful. d. antitrust laws eliminate competitors for a specified number of years. e. of all of the above

b. there is some barrier to entry to that market

If regulators break up a natural monopoly into many smaller firms, the cost of production a. will fall b. will rise c. will remain the same d. could either rise or fall depending on the elasticity of the monopolist's supply curve

b. will rise

Which of the following statements about price and marginal cost in competitive and monopolized markets is true? a. In competitive markets, price equals marginal cost; in monopolized markets price equals marginal cost b. In competitive markets, price exceeds marginal cost; in monopolized markets, price exceeds marginal cost c. In competitive markets, price equals marginal cost; in monopolized markets, price exceeds marginal cost d. In competitive markets, price exceeds marginal cost; in monopolized markets, price equals marginal cost.

c. In competitive markets, price equals marginal cost; in monopolized markets, price exceeds marginal cost

Which of the following statements about price discrimination is not true? a. Price discrimination can raise economic welfare b. Price discrimination requires that the seller be able to separate buyers according to their willingness to pay c. Perfect price discrimination generates a deadweight loss. d. Price discrimination increases a monopolist's profits e. For a monopolist to engage in price discrimination, buyers must be unable to engage in arbitrage.

c. Perfect price discrimination generates a deadweight loss

South-Western is a monopolist in the production of your textbook because a. South-Western owns a key resource in the production of textbooks b. South-Western is a natural monopoly c. the government has granted South-Western exclusive rights to produce this text book. d. South-Western is a very large company

c. the government has granted South-Western exclusive rights to produce this text book

Which of the following is not a barrier to entry in a monopolized market? a. the government gives a single firm the exclusive right to produce some good. b. The costs of production make a single producer more efficient than a large number of producers. c. A key resource is owned by a single firm d. A single firm is very large

d. a single firm is very large

When a monopolist produces an additional unit, the marginal revenue grenerated by that unit must be a. above the price because the output effect outweighs the price effect. b. above the price because the price effect outweighs the output effect. c. below the price because the output effect outweighs the price effect d. below the price because the price effect outweighs the output effect

d. below the price because the price effect outweighs the output effect.

Using government regulations to force a natural monopoly to charge a price equal to its marginal cost will a. improve efficiency b. raise the price of the good c. attract additional firms to enter the market d. cause the monopolist to exit the market

d. cause the monopolist to exit the market

The inefficiency associated with monopoly is due to a. the monopoly's profits b. the monopoly's losses c. overproduction of the good d. underproduction of the good

d. underproduction of the good

The monopolist's supply curve a. is the marginal cost curve above the AVC b. is the marginal cost curve above the ATC c. is the upward sloping portion of the ATC curve d. is the upward sloping portion of the AVC e. does not exist

e. does not exist