Chapter 15 Econ
fundamental cause of monopoly is
barriers to entry
a monopoly's marginal-revenue curve lies_______ its demand curve
below
the law governing patents and copyrights have ________ and costs
benefits
antitrust laws allow government to ________ companies
break-up
marginal cost equation
change in total cost / change in quantity of output
marginal revenue is
change in total revenue / change in quantity (output)
As a market expands, a natural monopoly can evolve into a more __________ market
competitive
consumer surplus
customers' willingness to pay for a good minus the amount they actually pay for it
the inefficiency of monopoly can be measured with a
deadweight loss triangle
for monopolies, the socially efficient quantity is found where the ________ curve and the marginal cost-curve intersect
demand
the deadweight loss of monopoly firm is represented between the ________ and the marginal-cost curve
demand
competitive firm faces horizontal
demand curve
monopoly firm's market demand curve is its own __________
demand curve
the monopolist's demand curve slopes ______
downward
when a firm is a natural monopoly, it is less concerned about new _______ eroding its monopoly power
entrants
monopolies take the point and the intersection of marginal-revenue and marginal-cost (profit-maximizing point) and find their quantity by
going up with a line to the demand curve (the point where it is above MR/MC intersection)
marginal revenue is negative when the price effect on revenue is _______ the output effect
greater than
market price in competitive firm (graph) is a
horizontal line
benefit of copyright and patent laws are
increased incentive for creative activity
if a monopolist raises the price of its good, consumers buy ______ of it
less
antitrust laws prevent companies from coordinating their activities in ways that make markets ________________
less competitive
the monopolist produces ______ the socially efficient quantity of output
less than
a monopolist's marginal revenue is always ________ than the _____ of its good
less, price
monopoly firm is a price
maker
a monopoly charges a price that exceeds _________
marginal cost
competitive firms take the price of output as given by the market and then chooses the quantity... so that price equals ____________
marginal cost
in competitive markets, price =
marginal cost
in monopolized markets, price exceeds
marginal cost
a firm's profit-maximizing quantity of output is determined by the intersection of the _______ and the _______ curve
marginal-revenue, marginal-cost
because a competitive firm can sell all it wants at the _________ there is no _________
market price, price effect
when a firm's average total cost curve continually declines, the firm has what is called a
natural monopoly
if government sets marginal-cost price, the government subsidizes the natural monopolist by ___________ losses inherent in marginal-cost pricing
picking up
antitrust laws allow government to _____ mergers
prevent
for competitive and monopoly firms, average revenue always equals the ______ of the good
price
this market power alters the relationship between the firm's cost and the _______ at which it sells its product
price
for competitive firms, marginal revenue equals
price (of its good)
marginal revenue of the first unit sold equals
price of the good (important to know for graphing)
antitrust laws give government various ways to
promote competition
governments can make privately owned natural monopolies _____
public (run the monopoly itself)
when monopoly increases the production by 1 unit, is must _____ the price it charges
reduce
if marginal cost is greater than marginal revenue, the monopoly can raise profit by ________ production
reducing
for natural monopolies, government agencies _______ their prices
regulate
_______ is a common solution in the case of natural monopolies
regulation
a natural monopoly rises when there are economies of scale over the
relevant range of output
in a market with a natural monopoly, would-be entrants know that they cannot achieve the same low cost because, after entry, each firm would have a ____________ of the market
smaller piece
competitive firm is a price
taker
producer surplus
the amount producers receive for a good minus their costs of producing it
benefits of copyright and patent laws are offset (to some extent) by
the costs of monopoly pricing
the key difference between a competitive firm and a monopoly is
the monopoly's ability to influence the price of its output
the demand curve that any one competitive firm faces is perfectly elastic because
there are many perfect substitutes
each of the policies aimed at reducing the problem of monopoly has drawbacks, so some economists argue that it is often best for the government ______
to do nothing
the outcome of a monopoly fails to maximize _________
total economic well-being
because a high price reduces the quantity that its customers buy, the monopoly's profits are not ______
unlimited
profit equation (more complex version)
(P-ATC) x Q
for a competitive firm : P =
MR = MC
for a monopoly firm : P >
MR = MC
total revenue is
P x Q
(price effect) when a monopoly increases the amount it sells, the price falls, so ___ is lower, which tends to decrease ______
P, total revenue
(output effect) when a monopoly increases the amount it sells ____ is higher, which tends to increase _______
Q, total revenue
average total cost equation
TC/Q
profit equation (simple, involving total revenue and total cost)
TR - TC
monopolist's profit is
TR-TC
average revenue is
TR/Q
average revenue equation, which equals ______
TR/Q price
monopoly
a firm 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
3 sources of barriers to entry
1) a key resource (required for production) is owned by a single firm 2) the government gives a single firm the exclusive right to produce some good or service 3) a single firm can produce output at a lower cost than can a large number of producers
