Econ 202- Ch 9

What type of protection does U.S. law grant the creator of a book, film or piece of music?

A copyright, which grants the exclusive right to use the creation during the author's lifetime and to his or her heirs for 70 years after the author's death.

What is the difference between a public franchise and a public enterprise?

A public franchise grants a firm the right to be the sole legal provider of a good or service. A public enterprise refers to a service that is provided directly to consumers through the government.

ATC = ____ + _____

AFC + AVC

AFC = _______ - ________

ATC - AVC

If marginal cost is above the average variable cost, then average variable cost is decreasing.

FALSE

The marginal cost curve is U-shaped because of the law of increasing opportunity costs.

FALSE- The Marginal Cost Curve is a quadratic, "hook shape"

Is Jill Johnson correct when she says the​ following: "I am currently producing​ 10,000 pizzas per month at a total cost of ​$80,000. If I produce​ 10,001 pizzas, my total cost will rise to ​$80,050. ​Therefore, my marginal cost of producing pizzas must be​ increasing."

Jill's average total cost of production is​ increasing, so her marginal cost of producing pizzas must be increasing.

If a firm is a natural monopoly, competition from other firms cannot be counted on to force price down to the level where the company earns zero economic profit. How are prices usually set in natural monopoly markets in the United States?

Local or state regulatory commissions usually set prices for natural monopolies.

Which of the following is true at the output level where average total cost is at its minimum?

Marginal cost equals average total cost where ATC is at its minimum

Which of the following statements is false?

Marginal cost will equal average total cost when marginal cost is at its lowest point.

Which of the following statements applies to a monopolist but not to a perfectly competitive firm at their profit maximizing outputs?

Marginal revenue is less than price.

Is it possible for average total cost to be decreasing over a range of output where marginal cost is​ increasing? Briefly explain.

Yes. If marginal cost is less than average total​ cost, then average total cost will be decreasing.

Collusion is

an agreement among firms to charge the same price or otherwise not to compete.

In the United States, government policies with respect to monopolies and collusion are embodied in

antitrust laws

Natural monopolies exist when

average total cost is still declining when it intersects demand

The International Nickel Company of Canada is often cited as an example of monopoly. What was the source of the barrier to entry that gave this firm monopoly power?

control of a key resource

A monopoly firm is the only seller of a good or service that

does not have a close substitute.

A local electricity-generating company has a monopoly that is protected by an entry barrier that takes the form of

economies of scale

Compared to perfect competition, the consumer surplus in a monopoly

is lower because price is higher and output is lower.

To maximize profit a monopolist will produce where

marginal revenue is equal to marginal cost.

If a theatre company expects $250,000 in ticket revenue from five performances and $288,000 in ticket revenue if it adds a sixth performance, the

marginal revenue of the sixth performance is $38,000.

The reason that the Fisherman's Friend restaurant in Stonington, Maine had a monopoly on selling seafood dinners in that town is most likely due to

no competitors apparently found the profit level attractive enough to enter the market.

Firms do not have market power in which of the following market structures?

perfect competition only

Governments grant patents to encourage

research and development on new products.

A Herfindahl-Hirschman Index is calculated by

summing the squares of the market shares of each firm in the industry.

The first important law regulating monopolies in the United States was

the Sherman Act, which was passed in 1890.

One reason patent protection is vitally important to pharmaceutical firms is

the approval process for new drugs through the Food and Drug Administration can take more than 10 years and is very costly. Patents enable firms to recover costs incurred during this process.

As output increases

the difference between average total cost and average variable cost decreases.

Arnold Harberger was the first economist to estimate the loss of economic efficiency due to market power. Harberger found that

the loss of economic efficiency in the U.S. economy due to market power was less than 1 percent of the value of production.

The shape of the average total cost curve is determined by the shape of

the marginal cost curve

In the world oil market, oil is supplied up to the point where

the marginal cost of the last barrel is just equal to the price buyers are willing to pay for that last barrel.

The demand curve for the monopoly's product is

the market demand for the product.

Because a monopoly's demand curve is the same as the market demand curve for its product

the monopoly must lower its price to sell more of its product.

The most profitable price for a monopolist is

the price for which marginal revenue equals marginal cost.

Economic efficiency in a free market occurs when

the sum of consumer surplus and producer surplus is maximized.

Average total cost is equal to

total cost divided by the level of output.

Few firms in the United States are monopolies because

when a firm earns profits, other firms will enter its market.

Explain why the marginal cost curve intersects the average variable cost curve at the level of output where average variable cost is at a minimum.

when the marginal cost of the last unit produced is below the​ average, it pulls the average​ down, and when the marginal cost is above the​ averge, it pulls the average up

A monopolist's profit maximizing price and output correspond to the point on a graph

where marginal revenue equals marginal cost and charging the price on the market demand curve for that output

When a firm produces 50,000 units of output, its total cost equals $6.5 million. When it increases its production to 70,000 units of output, its total cost increases to $9.4 million. Within this range, the marginal cost of an additional unit of output is

$145

If the total cost of producing 20 units of output is $1,000 and the average variable cost is $35, what is the firm's average fixed cost at that level of output?

$15 1000 (Total Cost)/20 (Quantity) = 50 (ATC) 50 (ATC) - 35 (AVC) = (AFC)

If average total cost is $50 and average fixed cost is $15 when output is 20 units, then the firm's total variable cost at that level of output is

$700

Suppose an industry is made up of 25 firms, all with equal market share. The four-firm concentration ratio of this industry is

16%

Which of the following statements is true?

As output increases, average fixed cost becomes smaller and smaller.

If a monopolist's price is $50 per unit and its marginal cost is $25, then

Not enough information is given to say what the firm should do to maximize profit.

The first important federal law passed to regulate monopolies in the United States was the

Sherman Act.

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.

A public franchise

is a government designation that a private firm is the only legal producer of a good or service.