Chapter 15
One firm can supply 1818 units of output for $11 less per unit in average total cost than two firms
1
The Department of Justice and the Federal Trade Commission use the HHI calculation for a market to evaluate proposed horizontal mergers. For example, if the post-merger HHI is below 1,5001,500, then the market is not concentrated, so mergers in them are not challenged; however, at the other extreme, if the post-merger HHI is above 2,5002,500, then the market is highly concentrated, and mergers that increase the HHI by 100 to 200 points may be challenged and mergers that increase the HHI by more than 200 points will likely be challenged.
1500 2500
A patent is the exclusive right to a product for a period of years from the date the patent is filed with the government.
20
How long do patents last?
20
Assume the table above gives the monthly demand and costs for subscriptions to basic cable for Comcast, a cable television monopoly in Philadelphia. If Comcast maximizes its profits how much profit will it earn?
4
$80 0 $80 Shakti Inc. has been granted a patent for its arnica toothache balm. The table to the right shows the demand and the total cost schedule for the firm. What is the amount of Shakti's profit?
68
A form of market structure studied by economists is monopoly. When is a firm a monopoly, or are monopolies only theoretical concepts that do not exist?
A firm is a monopoly if it can ignore the actions of all other firmsA firm is a monopoly if it can ignore the actions of all other firms.
A form of market structure studied by economists is monopoly. When is a firm a monopoly, or are monopolies only theoretical concepts that do not exist?
A firm is a monopoly if its economic profits are not competed away in the long run.
What is the government's policy on collusion in the United States? Explain the rationale for this policy. In the United States
The government makes collusion illegal with antitrust laws because monopolies reduce economic efficiency reduce economic efficiency.
Why does the government issue patents? The government issues patents
To encourage firms to spend money on the research and development necessary to create new products.
Give an example of a public franchise and an example of a public enterprise. An example of a public franchise is
a firm that is the sole, government-designated provider of waterwater, and an example of a public enterprise is the government directly providing waterwater.
The Department of Justice and the Federal Trade Commission must define the relevant market when determining whether to allow a merger. How do economists identify the relevant market? The relevant market has been identified if
a price increase results in higher profits; otherwise, the market is too narrow.
After having a monopoly in the diamond market for many years, by 2000, De Beers faced competition from other companies. To maintain its market share, De Beers
adopted a strategy of differentiating its diamonds. Each of its diamonds is now marked with a microscopic brand.
What is the definition of monopoly?
all of the above
The Clayton Act prohibited
any merger if its effect was to substantially lessen competition or create a monopoly.
To have a monopoly in an industry there must be
barriers to entry so high that no other firms can enter the industry.
To have a monopoly, barriers to entering the market must be so high that no other firms can enter. Do network externalites create or remove barriers to entry? Explain. Network externalities
create barriers to entry because if a firm can attract enough customers initially, it can attract additional customers as its product's value increases by more people using it, which attracts even more customers.
What happens if a perfectly competitive industry becomes a monopoly? Suppose the demand curve in the figure is market demand and the corresponding market supply curve represents the marginal cost of production. Compared to perfect competition, a profit-maximizing monopoly would ▼ decreaseincrease output by nothing units.
decrease by 2
What effect might market power have on technological change? Market power results in
economic profits that can be spent on research to develop new products.
Many firms might like to be monopolies because such firms earn economic profits in the long run. What might cause a monopoly? A firm is likely to be a monopoly if
economies of scale are so large that the firm has a natural monopoly economies of scale are so large that the firm has a natural monopoly.
Many biologic drug manufacturers are pushing for patent protection to be extended to 12 years before generics are allowed to be introduced to the market. This reflects which of the following barriers to entry?
entry blocked by government action
The most profitable price for a monopolist is
found where the profit-maximizing quantity hits the demand curve.
A patent or copyright is a barrier to entry based on
government action to protect a producer.
Governments often have the potential to influence whether firms are monopolies How might the government affect whether a firm is a monopoly? The government could
grant a patent to a firm comma giving it the exclusive right to produce a product grant a patent to a firm, giving it the exclusive right to produce a product.
A merger between the Ford Motor Company and General Motors would be an example of a
horizontal merger.
A market economy benefits from market power
if firms with market power do research and development with the profits earned.
Describe a monopoly's demand curve. A monopoly's demand curve
is the same as the demand curve for the product.
For many years, the Aluminum Company of America left parenthesis Alcoa right parenthesisthe Aluminum Company of America (Alcoa) essentially operated as a monopoly. What made this company a monopoly The Aluminum Company of America left parenthesis Alcoa right parenthesisThe Aluminum Company of America (Alcoa) was essentially a monopoly because
it had almost exclusive control of the world's supply of bauxite, used to make aluminumaluminum.
For many years, the Aluminum Company of America left parenthesis Alcoa right parenthesisthe Aluminum Company of America (Alcoa) essentially operated as a monopoly. What made this company a monopoly The Aluminum Company of America left parenthesis Alcoa right parenthesisThe Aluminum Company of America (Alcoa) was essentially a monopoly because
it had almost exclusive control of the world's supply of bauxitebauxite, used to make aluminumaluminum.
Refer to the diagram to the right which shows the demand and cost curves facing a monopolist. If the firm's average total cost curve is ATC1, the firm will
make a profit
Concept: Comparing Economic Efficiency Question Help Which are more economically efficient, perfectly competitive markets or monopolies? Compared to monopolies, perfectly competitive markets are
more economically efficient because they result in more economic surplus.
Refer to the diagram to the right which shows the demand and cost curves facing a monopolist. The firm's profit maximizing price is
p3
Refer to the diagram to the right which shows the demand and cost curves facing a monopolist. To maximize profit, the firm will produce at output level
q2
In addition, a monopoly would lower raise price by $nothing.
raise $1
Is the loss in efficiency due to market power large or small? Explain. The loss in efficiency due to market power is
small because competition limits market power comma even when the market is not perfectly competitive
Is the loss in efficiency due to market power large or small? Explain. The loss in efficiency due to market power is
small because firms with substantial market power are rare firms with substantial market power are rare.
Refer to the diagram to the right which shows the demand and cost curves facing a monopolist. If the firm's average total cost curve is ATC3, the firm will
suffer a loss
Many firms might like to be monopolies because such firms earn economic profits in the long run. What might cause a monopoly? A firm is likely to be a monopoly if
that firm has control of a key resource necessary to produce a good or service that firm has control of a key resource necessary to produce a good or service.
Market power refers to
the ability of a firm to charge a price higher than the marginal cost of production.
What is the government's policy on collusion in the United States? Explain the rationale for this policy. In the United States
the government makes collusion illegal with antitrust laws because monopolies reduce economic efficiency reduce economic efficiency.
A possible advantage of a horizontal merger for the economy is that
the merged firm might reap economies of scale which could translate into lower prices.
Many firms might like to be monopolies because such firms earn economic profits in the long run. What might cause a monopoly? A firm is likely to be a monopoly if
there are important network externalities in supplying the good or service there are important network externalities in supplying the good or service.
Many firms might like to be monopolies because such firms earn economic profits in the long run. What might cause a monopoly? A firm is likely to be a monopoly if
there are important network externalities in supplying the good or servicethere are important network externalities in supplying the good or service.
Why does the government issue patents? The government issues patents
to encourage firms to spend money on the research and development necessary to create new products.
The figure to the right illustrates market demand for a monopoly along with its average total cost (ATC) curve. Is the monopoly a natural monopoly The firm
A. is a natural monopoly because it can supply the entire market at lower average total cost than can two or more firms.
Peet's Coffee and Teas produces some flavorful varieties of Peet's brand coffee. Is Peet's a monopoly?
No, although Peet's coffee is a unique product, there are many different brands of coffee that are very close substitutes.
