CH 12: Pure Monopoly
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
______ of essential property is a barrier to entry into an industry.
Control
_________ of essential property is a barrier to entry into an industry
Control
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
What term is used to describe declining average total costs with added firm size?
Economies of scale
Price discrimination is not practiced very often in the US economy.
False
How does a monopoly generally transfer income?
From the consumers to the owners of the monopoly
______ create(s) legal barriers to entry.
Government
Which of the following are characteristics of public utilities?
Government-owned or regulated Monopolies or near monopolies
A monopolist does not have a supply curve because:
It does not equate price with marginal cost There is no single, unique price associated with each level of output
Government creates ___________________ barriers to entry.
Legal
If producing is preferable to shutting down, a profit-seeking monopolist will produce up to the output at which _______.
MR= MC
Which of the following are conditions necessary for price discrimination?
Market segregation Monopoly power No resale
If the objective of the 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 assumptions made in the model of pure monopoly?
Patent, economies of scale, and resource ownership secure the firm's monopoly No unit of government regulates the firm. The firm is a single-price monopolist and charges the same price for all units of output.
What is the term used to refer to charging different prices to different buyers of a specific product?
Price discrimination
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
_______________ 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
If a firm is found guilty of achieving a monopoly through anticompetitive actions, then which of the following may occur?
The firm may be broken into two or more competing firms The firm may be expressively prohibited from engaging in certain business activities.
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 the government is to achieve ___________ allocative efficiency, it should establish a legal price for the monopolist that is equal to its marginal cost.
allocative
The government broke up with 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
The monopolist's level of output is not at the minimum point of _______________, meaning it will not be productively efficient.
average total cost
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 _____________
decreasing
Price _________, or charging different prices to different consumers, is widely practiced in the US economy.
discrimination
The practice of charging different prices to different buyers for a specific product is known as price _____________.
discrimination
Price makers are firms with:
downward- sloping demand curves
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
X-inefficiency occurs when a firm operates at a cost that is ________________ 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
A firm can be expressly prohibited from engaging in certain business activities or can be broken into two or more competing firms when it
is found guilty of monopoly abuse
When a monopolist charges a higher price than a purely competitive firm would, the monopolist essentially ______.
levies a "private tax" on consumers.
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
lower
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
Slashing prices is an example of an entry barrier created by a(n)
monopolists
A(n) ______ is able to maintain an economic profit in the long run because there are no new entrants to increase supply, drive down prices, and eliminate economic profit.
monopoly
Patens, economies of scale, and resource ownership are all assumptions of the pure _________________ model.
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
A regulated monopoly is likely to suffer losses when _______________.
price is set to achieve the most efficient allocation of resources price is set to marginal cost (P=MC)
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
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
