Chapter 11 Micro Econ Full Study Guide
Sherman Antitrust Act
1890 law to prevent anticompetitive practices
Clayton Antitrust Act
1914 law to further prevent anticompetitive behavior
pure monopoly
A market structure in which one firm sells a unique product, into which entry is blocked, in which the single firm has considerable control over product price, and in which nonprice competition may or may not be found.
Regulated Monopoly
A monopoly subject to government price and quantity control
Blocked entry
A pure monopolist has no immediate competitors because certain barriers keep potential competitors from entering the industry. Those barriers may be economic, technological, legal, or of some other type.
No close substitutes
A pure monopoly's product is unique in that there are no close substitutes. The consumer who chooses not to buy the monopolized product must do without it.
natural monopoly
An industry in which economies of scale are so great that a single firm can produce the industry's product at a lower average total cost than would be possible if more than one firm produced the product.
barrier to entry
Anything that artificially prevents the entry of firms into an industry.
rent-seeking behavior
Attempts by individuals, firms, or unions to use political influence to receive payments in excess of the minimum amount they would normally be willing to accept to provide a particular good or service.
Price Discrimination
Charging different prices to different buyers
Market Demand
Consumer desire for a product at various prices
Economies of Scale
Cost advantages due to increased production scale
Near Monopolies
Entities like Intel or Google with significant market control
Public Utility Companies
Entities like natural gas suppliers with monopolistic traits
Patents
Exclusive rights to produce or license a product
Barriers to Entry
Factors limiting new firms from entering an industry
(T/F)"Price maker" means that a monopoly can decide whatever price it wants to, in order to sell a specific given quantity of its product
False
fair-return price
For natural monopolies subject to rate (price) regulation, the price that would allow the regulated monopoly to earn a normal profit; a price equal to average total cost.
Regulation of Monopolies
Government control over monopolistic behavior
Public Policy Toward Monopolies
Government stance on regulating or ignoring monopolies
Single seller
In a pure, or absolute, monopoly, a single firm is the sole producer of a specific good or the sole supplier of a service; the firm and the industry are synonymous.
network effects
Increases in the value of a product to each user, including existing users, as the total number of users rises.
Natural Monopolies
Industries where one firm can serve the market most efficiently
Creative Destruction
Innovation leading to the downfall of existing monopolies
Antitrust Laws
Laws to prevent monopolistic practices
Perfect Competition
Many producers sell identical goods at market price
Price Maker
Monopoly's ability to set the price of its product
Monopoly
One producer controls all of a unique product, setting the price
Price Taker
Perfect competition firms accept market price
Licenses
Permission to provide a specific good or service
Fair Return Price
Price set equal to average total cost for a reasonable profit
Socially Optimal Price
Price set equal to marginal cost for societal benefit
Marginal Revenue
Revenue change from selling one more unit
Patents on New Drugs
Temporary monopoly for drug sellers to recoup costs
socially optimal price
The price of a product that results in the most efficient allocation of an economy's resources and that is equal to the marginal cost of the product.
Nonprice competition
The product produced by a pure monopolist may be either standardized (as with natural gas and electricity) or differentiated (as with the Windows operating system or Frisbees). Monopolists that have standardized products engage mainly in public relations advertising, whereas those with differentiated products sometimes advertise their products' attributes.
X-inefficiency
The production of output, whatever its level, at a higher average (and total) cost than is necessary for producing that level of output.
Pricemaker
The pure monopolist controls the total quantity supplied and thus has considerable control over price; it is a pricemaker (unlike a pure competitor, which has no such control and therefore is a price taker). The pure monopolist confronts the usual downward sloping product demand curve. It can change its product price by changing the quantity of the product it produces. The monopolist will use this power whenever it is advantageous to do so.
simultaneous consumption
The same-time derivation of utility from some product by a large number of consumers.
price discrimination
The selling of a product to different buyers at different prices when the price differences are not justified by differences in cost.
dilemma of regulation
The trade-off faced by a regulatory agency in setting the maximum legal price a monopolist may charge: The socially optimal price is below average total cost (and either bankrupts the firm or requires that it be subsidized), while the higher, fair-return price does not produce allocative efficiency.
(T/F) A monopolist can use its pricing strategy as a barrier to entry by other firms.
True
(T/F) The government may create barriers to entry that serve to foster monopoly power of firms.
True
One feature of pure monopoly is that the firm is
a price maker.
Natural monopolies result from
extensive economies of scale in production
Suppose a firm has the long-run cost curves shown in the graph above. In the selling of this good, this firm would
have a natural monopoly if market demand intersects the part of the ATC curve shown.
A natural monopoly occurs when
long-run average costs decline continuously through the range of demand.
Large minimum efficient scale of plant combined with limited market demand may lead to
natural monopoly
A market where there are multiple firms, but one firm dominates and has the bulk (85 percent) of sales in the market, is called a
near-monopoly
One major barrier to entry under pure monopoly arises from
network effects
what is a characteristic of pure monopoly?
nonprice competition
Pure monopolists may obtain economic profits in the long run because
of barriers to entry
what is a monopolist?
price maker
What is a purely competitive firm
price taker
A firm trying to preserve its monopoly power would be expected to do all of the following except
raise its prices to secure monopoly profits.
Which phrase would be most characteristic of pure monopoly?
sole seller
