chapter 9

Briefly discuss the way in which a monopolist can seek out the profit-maximizing quantity of output.

A monopolist can seek out the profit-maximizing quantity of output in two ways: it can choose the quantity where total revenue exceeds total cost by the highest amount, or it can choose the quantity where marginal revenue is equal to marginal cost.

Briefly explain how a natural monopoly arises.

A natural monopoly arises when economies of scale persist over a large enough range of output that if one firm supplies the entire market, no second firm can enter without facing a cost disadvantage.

In the United States, a pharmaceutical company's exclusive patent rights last for

A. 20 years

A firm that holds a monopoly position in the market place is

A. a price maker

Occasionally, _________________ may lead to pure monopoly; in other market conditions, they may limit competition _________________ .

A. barriers to entry; to a few oligopoly firms

Copyright protection legislation provides protection for original works

A. during the author's life plus 70 years

__________________ law implies ownership over an idea or concept or image

A. intellectual property

If a monopolist increases quantity by one unit, but sells the increased output at a slightly lower price,

A. marginal revenue is affected by adding one additional unit sold at the new price.

A __________________ exists when the quantity demanded in the market is less than the quantity at the bottom of the long-run average cost curve.

A. natural monopoly

Roughly speaking, patent law covers __________ and __________ law protects an author's original books.

A. original inventive creations; copyright

Following the assumption that firms maximize profits, how will the price and output policy of an unregulated monopolist compare with ideal market efficiency?

A. output will be too small and its price too high.

Government ______________ regulations specify that inventors will maintain exclusive legal rights to their respective inventions for ______________ .

A. patent; a limited time

When the demand for a good or service limits the quantity that can be sold to an output at which the firm experiences economies of scale,

A. the firm is a natural monopoly

For a pure monopoly to exist

A. there is a single seller in a particular industry

If a firm holds a pure monopoly in the market and is able to sell 5 units of output at $4.00 per unit and 6 units of output at $3,90 per unit, it will produce and sell the sixth unit if its marginal cost is

B. $3.40 or less

The US government has registered ___________________ on behalf of business firms to protect a particularly distinct element each has selected for its ability to aid consumers to easily __________________ .

B. 800,000 trademarks; identify the source of goods

The marginal revenue curve for a monopolist ____________________ the market demand curve.

B. always lies beneath

The two primary factors determining monopoly market power are the firm's

B. demand curve and its cost structure

Once I'MaPharmaCo. has received confirmation of the registration for its latest drug patent application, it will have created a monopoly for that product by restricting

B. entry into the market

A natural monopoly occurs when the quantity demanded is ________ the minimum quantity it takes to be at the bottom of the long-run average cost curve.

B. less than

Which of the following is most likely to be a monopoly?

B. local electricity distributor

Deregulation occurs when a government eliminates or scales back rules relating to all but one of the following. Which one is it?

B. natural monopoly

A monopolist is able to maximize its profits by

B. producing output where MR = MC and charging a price along the demand curve.

_____________ and __________________ refer to the quantity and price at a point in time.

B. productive; allocative efficiency

In the event that Only1Corp. obtains control of all the natural gas producers in the US, it would most likely

B. raise prices, cut production, and realize positive economic profits.

What qualities would ideally suit a monopolistic firm with regard to barriers to entry?

B. sufficient strength to prevent or discourage potential competitors from entering the market

If it was possible for one company to gain ownership control all of the uranium processing plants in the US, then

B. that firm could set up barriers to entry to discourage competition.

Which of the following denotes the typical shape of the monopolist's total cost curve?

B. total costs rise and grow steeper as output rises

Briefly explain what is meant by the term "barriers to entry" and provide example of each.

Barriers to entry prevent or discourage business competitors from entering the market. These barriers include legal restrictions on competition, control of a physical resource, technological superiority, economies of scale that lead to natural monopoly, and practices to intimidate the competition like predatory pricing.

If a firm holds a pure monopoly in the market and is able to sell 4 units of output at $2.00 per unit and 5 units of output at $1.75 per unit, it will produce and sell the fifth unit if its marginal cost is

C. $0.75 or less

Which one of the following is the most accurate description of a monopolist?

C. a sole producer of a product for which good substitutes are lacking in a market with high barriers to entry

By 2007, US market deregulation has proven to be most toxic to the overall health of the US economy in the ________________________ .

C. banking sector

For a monopolistic firm, the demand for its product is

C. completely inelastic

The form of legal protection intended to prevent reproduction of original works is referred to as ______________ law.

C. copyright

When J.K. Rowling exerts copyright ownership of her literary works, she creates a monopoly by restricting

C. entry into the market.

The demand curve perceived by a perfectly competitive firm

C. is horizontal

The largest cattle rancher in a given region will be unable to have a __________ when sufficient numbers of smaller cattle ranchers provide sources of competition.

C. monopoly

The use of sharp, temporary price cuts as a form of _________________ would enable traditional US automakers to discourage new competition from smaller electric car manufacturers.

C. predatory pricing

Which of the following will present the least amount of concern to a firm that has a monopoly over a particular industry?

C. the competitive actions of other business firms

When a firm pursues a predatory pricing strategy, it does so

C. to maximum profits in the long run

In the business world, a _________________ is recognized as a legally acceptable way for any business to keep knowledge of its particular methods of production from being known by competing firms.

C. trade secret

If monopolists are able to produce fewer goods and sell them at a higher price than they could under perfect competition, the result will be

D. abnormally high sustained profits

The US laws dealing with original works of authorship allow the US Copyright Office to enforce protection for all but one of the following. Which one is it?

D. ancient Bible texts

Intellectual property law is a body of law that includes

D. copyright legislation, as well as all of the above

Which of the following is most unlikely to present a barrier to entry into a market?

D. deregulation

The slope of the demand curve for a monopoly firm is

D. downward sloping

If the North American newsprint paper market has barriers to entry, then

D. entry will be blocked even if firms are earning high profits.

When a monopolist increases sales by one unit

D. it loses some marginal revenue and all of the above.

When a natural monopoly exists in a given industry, the per-unit costs of production will be

D. lowest when a single firm generates the entire output of the industry.

The total revenue curve for a monopolist will

D. start low, rise, and then decline

Briefly contrast perfect competition and monopoly to explain a monopoly may or may not display productive efficiency.

In perfect competition, the process of entry and exit means that eventually the market price is driven down to the price at the minimum of the average cost curve. However, a monopoly does not need to worry about entry, nor does it need to produce at the bottom of the average cost curve. As a result, a monopoly will not display productive efficiency.

Briefly explain why monopolists are neither productively nor allocative efficient and briefly describe what results from these circumstances.

Monopolists are not productively efficient, because they do not produce at the minimum of the average cost curve. Monopolists are not allocative efficient, because they do not produce at the quantity where P = MC. As a result, monopolists produce less, at a higher average cost, and charge a higher price than would a combination of firms in a perfectly competitive industry.

Briefly describe the typical average cost curve and the marginal cost curves most often faced by monopolists.

Monopolists will often face the U-shaped average cost curve and upward-sloping marginal cost curve.

Briefly describe how a monopolist will select the profit-maximizing level of output and price.

The monopolist will select the profit-maximizing level of output where MR = MC, and then charge the price for that quantity of output as determined by the market demand curve.

Briefly discuss what happens in the long run with respect to monopolist's total revenue.

Total revenue for a monopolist will start low, rise, and then decline. The marginal revenue for a monopolist from selling additional units will decline. Each additional unit sold by a monopolist will push down the overall market price, and as more units are sold, this lower price applies to more and more units.