Chapter 15 macro review
If the government regulates the price that a natural monopolist can charge to be equal to the firm's marginal cost, the firm will
earn negative profits, causing the firm to exit the industry.
Perfect price discrimination
increases profits to the firm. increases total surplus. decreases consumer surplus.
When there are economies of scale over the relevant range of output for a monopoly, the monopoly
is a natural monopoly.
Exclusive ownership of a key resource
is a potential but rare cause of a monopoly.
A competitive firm
is a price taker, whereas a monopolist is a price maker.
For a firm to price discriminate,
it must have some market power. Correct
For a monopolist, marginal revenue is
less than price, whereas marginal revenue is equal to price for a perfectly competitive firm.
Private ownership of a monopoly may benefit society because the monopoly will have an incentive to
lower its costs to earn a higher profit.
Price discrimination requires the firm to
separate customers according to their willingnesses to pay.
Price discrimination
the business practice of selling the same good at different prices to different customers
A government-created monopoly arises when
the government gives a firm the exclusive right to sell some good or service.
One problem with government operation of monopolies is that
the government typically has little incentive to reduce costs.
When a monopoly increases its output and sales,
the output effect works to increase total revenue, and the price effect works to decrease total revenue.
Many movie theaters allow discount tickets to be sold to senior citizens because
the theaters are profit maximizers.
A natural monopoly arises when
there are economies of scale over the relevant range of output.
Monopoly pricing prevents some mutually beneficial trades from taking place. These unrealized, mutually beneficial trades are
a deadweight loss to society.
When we compare economic welfare in a monopoly market to a competitive market, the profits earned by the monopolist represent
a transfer of benefits from the consumer to the producer.
The fundamental source of monopoly power is
barriers to entry
A monopoly
can set the price it charges for its output but faces a downward-sloping demand curve so it cannot earn unlimited profits.
Marginal revenue for a monopolist is computed as
change in total revenue per one unit increase in quantity sold.
A monopoly firm is a price
maker and has no supply curve
A profit-maximizing monopolist will produce the level of output at which
marginal revenue is equal to marginal cost.
Deadweight loss
measures monopoly inefficiency.
For a monopolist, when the output effect is greater than the price effect, marginal revenue is
positive
When regulators use a marginal-cost pricing strategy to regulate a natural monopoly, the regulated monopoly
will experience a loss. will experience a price below average total cost. may rely on a government subsidy to remain in business. All of the above are correct.
