EC 111 Chapter 14
True or False: The marginal revenue curve for a monopolist reflects the increase in the price the firm will get by expanding output.
False The marignal revenue curve reflects the change in total revenue, not the change in price.
When looking at a graph of a monopolistic competitor with a demand curve, MR curve, and an MC curve, how is their price determined?
The monopolisitic competitor will produce at the point where the marginal cost curve intersects the marginal revenue curve, and will charge the corresponding price on the demand curve.
Marginal revenue is not equal to price for a monopolist because
The monopolist must lower the price of all units in order to sell more
A significant difference between monopoly and perfect competition is that (something about demand curve)
The monopolist's demand curve is the industry demand curve, whereas the competitive firm's demand curve is perfectly elastic
A monopolist's marginal revenue is always less than the price it receives because the price it receives for its product
falls for all unit as it increases output
Does monopolistic competition have few or many barriers to entry?
few
A market structure in which one firm makes up the entire market is called a ...
monopoly
A price-discriminating monopolist will charge a higher price to individuals whose demand is
more inelastic
Average total costs fall as output increases for a (what type of firm?)
natural monopoly
In a market with a price-discriminating monopolist, there is ...
no welfare loss
At the long-run profit maximizing level for a monopolistic competitor average total costs are - at their maximum - at their minimum - not at their maximum - not at their minimum
not at their minimum
When MC > MR, the monopolist will decrease output because
reducing output increases total profit
In a market with a perfectly price-discriminating monopolist, the welfare loss is captured by the monopolist because its marginal (what is its what)
revenue curve is its demand curve MR = D
If a monopolistically competitive market became perfectly competitive, output probably would
rise
Refer to the table shown below, which shows the demand schedule for a product sold by a monopolist. Marginal revenue is positive when Price of Products Quantity Demanded/Year 14 ------------------------------- 3 12 ------------------------------- 4 10 ------------------------------- 5 8 -------------------------------- 6 6 -------------------------------- 7
price is above $10
Refer to the table shown below, which shows the demand schedule for a product sold by a monopolist. Marginal revenue is negative when Price of Products Quantity Demanded/Year 14 ------------------------------- 3 12 ------------------------------- 4 10 ------------------------------- 5 8 -------------------------------- 6 6 -------------------------------- 7
price is below $10
When a monopolistically competitive industry is in long-run equilibrium, firms earn ...
zero economic profits
If price equal average total cost at the profit-maximizing level of output, a monopolist will make - loss - profit - zero profit
zero profit
In the long run, a monopolistic competitor makes - it depends on the firm's costs - zero profit - a loss - a profit
zero profit
Suppose a monopolist is at the profit-maximizing output level. If the monopolist sells another unit of output, - producer surplus falls but consumer surplus rises - producer surplus falls and consumer surplus falls - producer surplus rises but consumer surplus falls - producer surplus rises and consumer surplus rises
Producer surplus falls but consumer surplus rises
When MC = MR, the monopolist is maximizing profit because - if MR > MC, the monopolist gains profit by ... (doing what to output) - if MR < MC, the monopolist gains profit by ... (doing what to output)
- increasing output - decreasing output
What are 3 key differences between a monopolist and a perfect competitor? 1. output affecting price 2. controling price 3. barriers to entry
1. A monopolist takes into account the fact that its output decision can affect price, while a perfect competitor does not. 2. As the number of units a monopolist sells, the price it can get for those units falls, while a perfect competitor cannot affect market price. 3. A monopolist is protected by barriers to entry, while a perfect competitor is not.
What can a monopolist earn (3)?
1. A profit 2. A zero profit 3. A loss
4 characteristics of monopolistic competition are
1. Many sellers 2. Differentiated products 3. Multiple dimensions of competition 4. Easy entry of new firms in the long run
If a monopolist competitor is making a profit, what following adjustments may occur in the long run?
1. New firms enter the market. 2. The average total cost curve will shift upwards as the firm expands marketing expenditures to protect its market share.
A price-discriminating monopolist would charge consumers with 1. more elastic demands a ... 2. less elastic demands a ...
1. lower price 2. higher price
3 important barriers to entry
1. natural ability 2. economies of scale 3. government restrictions
If a monopolist takes over what had been a competitive market ... 1. price will ... 2. output will ...
1. rise 2. fall
The difference between the average total cost curve and a demand curve in a perfectly competitive market and a monopolistically competitive market is that at the long-run profit-maximizing level
1. the demand curve of a perfectly competitive firm is tangent to its ATC at its minimum point, while the demand curve of a monopolistically competitive firm is not 2. the ATC of a perfectly competitive firm is at its minimum, while the ATC of a monopolistically competitive firm is not
The demand curve for a monopolist differs from the demand curve faced by a competitive firm because the demand curve for (a monopolist is ...)
A monopolist is the market demand curve
In a long-run equilibrium, monopolistically competitive firms produce where (? = ?)
ATC = Price
Suppose a monopolist is at the profit-maximizing output level. If the monopolist reduces output (same thing happens to two things)
Both producer surplus and consumer surplus decrease
True or False: Compared to a perfectly competitive market, in a monopoly, output is higher and the price is lower because a monopoly takes into account the effect that restricting output has on marginal product
False
True or False: For a monopolistic competitor, the marginal revenue curve is above the demand curve
False
True or False: A monopolist's marginal revenue is always above its price because to sell more it must lower its price.
False A monopolist's marginal revenue is always below its price because an increase in output lowers the price on all previous units.
What is the welfare loss from monopoly?
It is a triangle. It is not the loss that most people consider. Most people are often interested in normative losses that the graph does not capture.
Under normal monopoly, price exceeds marginal cost, which implies that the
Marginal costs to society of increasing output are lower than the marginal benefits of increasing output
What type of firm can earn a profit in the long run?
Monopolist
When does a natural monopoly occur? - when what ... - can what ... - for what ... - at a what ... - than what ... - if what ...
Occurs when a single firm can supply the entire market demand for a product at a lower average total cost than would be possible if two or more firms supplied the market
For a monopolist, the point where the marginal revenue curve intersects the horizontal axis is
One-half the distance between the origin and the point where the demand curve intersects the horizontal axis
Why are patents important to those who hold them
Patents act as a barrier to entry, allowing monopoly profits
It makes sense for Wendy's to advertise its new menu that allows customers to choose fruit or salad as a substitute for French fries in its values meals as long as doing so
Raised revenue by more than it raised the cost of advertising
The difference between a monopolist and a monopolistic competitor is that
The average total cost curve of a monopolistic competitor is tangent to the demand curve in long-run equilibrium, but the average total cost curve of a monopolist can be in a position below the price in the long-run equilibrium
How do you get the proft that a monopolist makes from a graph with a MC curve, MR curve, ATC curve, and demand curve? (profit = (? - ?) x ?)
The difference between the price and the average total cost multiplied by this level of output gives the profit that the monopolist makes.
If a monopolist produces beyond the quantity where MC = MR
The increase in revenue is less than the increase in cost
The deadweight loss from monopoly exists because
The marginal benefit of the monopolist's product to society exceeds the monopolist's marginal cost
True or False: A monopolistic competitor takes into account the effect that increasing output has on marginal revenue.
True
True or False: A key difference between monopolists and perfect competitors is that the marginal revenue curve facing a perfect competitor is horizontal, while the marginal revenue curve facing a monopolist is downward sloping.
True The marginal revenue curve for a perfect competitor is horizontal because it takes price as given. It is downward sloping for a monopolist because when it lowers price, it must lower the price for all preceding units.
If price is less than average total cost at the profit-maximizing level of output, a monopolist will make
a loss
Monopolistic Competition (brief definition)
a market structure in which there are many firms selling differentiated products and few barriers to entry
A monopolist can earn (3 options)
a profit, zero profit, or even incur a loss
In the long-run equilibrium for monopolistically competitive firm, price (exceeds what)
exceeds marginal cost
Natrual Monopoly (brief definition)
an industry in which a single firm can produce a lower cost than can two or more firms
ECONOMIC PROFIT occurs at the profit-maximizing level of output of a monopolist when (? < ? where ? = ?)
atc < p where MC=MR
The price a monopolist sets is equal to
average revenue
A natural monopoly occurs when indivisible setup costs are so HIGH that
average total costs fall within the range of possible outputs
The marginal revenue curve of a monopolistic competitor is - above the demand curve - the same as the demand curve - below the demand curve
below the demand curve
In the long run, profit is zero for - monopolistically competitive firms only - both perfectly and monopolistically competitive firms - perfectly competitive firms only - neither perfectly nor monopolistically competitive firms
both perfectly and monopolistically competitive firms
For a monopolist, the price of the product (exceeds what)
exceeds the marginal revenue
As output increases, marginal revenue of a monopoilist - does not change - decreases - increases
decreases
A purpose of advertising is to make the (what for what more elastic/inelastic)
demand for one's product more inelastic
Price exceeds the marginal cost for a monopolistically competitive firm in long-run equilibrium because (demand is what)
demand is not perfectly elastic
When MC < MR, the monopolist will (do what to output)
increase output
As output decreases, the marginal revenue of a monopolist
increases MR increases because the price for all units is higher as output declines.
A monopolitic competitor takes into account the effect that - increasing output has on marginal cost - decreasing output has on marginal revenue - increasing output has on marginal revenue - decreasing output has on marginal cost
increasing output has on marginal revenue
A monopoly firm selling textbooks to students in a small town is currently maximizing profits by charging a price of $50 per book. It follows that the marginal cost of textbooks is - less than $50 - equal to $50 - greater than $50
less than $50
A natural monopolist would make a loss if it charged a price equal to
marginal cost
A monopolist will produce at the point where the marginal cost curve intersects the
marginal revenue curve
Output would be lower and price would be higher if a competitive market is made into a monopoly because a monopolist - ignores the effect that restricting output has on price - can charge whatever price it wants for a given level of output - takes into account the effect that restricting output has on price
takes into account the effect that restricting output has on price
The marginal revenue curve for a monopolist is
the additional revenue the firm will get by expanding output
For monopolistically competitive firms in the long run, profit is - the same as for perfect competitors - less than profit for perfect competitors - greater than profit for perfect competitors
the same as for perfect competitors In the long run, profit is zero for both perfect and monopolistic competitors.
Refer to the table shown below, which shows the demand schedule for a product sold by a monopolist. Marginal revenue is closest to zero when Price of Products Quantity Demanded/Year 14 ------------------------------- 3 12 ------------------------------- 4 10 ------------------------------- 5 8 -------------------------------- 6 6 -------------------------------- 7
when price is $10
You are shown a graph of a monopolist in long-run equilibrium and a graph of a monopolistically competitive firm in short-run equilibrium. How could you tell which is which?
you probably could not
