ECON: Ch.12
A price-discriminating monopolist will follow a system where: A)Buyers with inelastic demand are charged higher prices than buyers with elastic demand B)The price of the product is held the same even if the demand changes C)All buyers are charged the same price regardless of their elasticity of demand D)Buyers with inelastic demand are charged lower prices than buyers with elastic demand
A
At the profit-maximizing level of output for a monopolist: A)Price is greater than marginal cost B)Average total cost equals marginal cost C)Total revenue is greater than total cost DPrice is greater than average revenue
A
Many people believe that monopolies charge any price they want to without affecting sales. Instead, the output level for a profit-maximizing monopoly is determined by: A)Marginal cost = marginal revenue B)Marginal revenue = average cost C)Average total cost = average revenue D)Marginal cost = average revenue
A
One major barrier to entry under pure monopoly arises from: A)Ownership of essential resources B)The price taking ability of the firm C)The availability of close substitutes for a product D)Diseconomies of scale
A
Pure monopolists: A)Maximize MR B)Operate where P > MC C)Are price takers D)Face demand curves that are perfectly inelastic
B
The area labeled "Economic profit" can be found by multiplying the difference between P and ATC by quantity. It also can be found by: A)Dividing profit per unit by quantity B)Subtracting total cost from total revenue C)Multiplying the coefficient of demand elasticity by quantity D)Multiplying the difference between P and MC by quantity
B
The factors that prohibit firms from entering an industry
Barriers to entry
The monopolist's marginal-revenue curve lies ____ its demand curve
Below
At this monopolist's profit-maximizing output: A)Price equals marginal revenue. B)Price equals marginal cost. C)Price exceeds marginal cost. D)Profit per unit is maximized
C
To practice long-run price discrimination, a monopolist must: A)Be a natural monopoly B)Permit the resale of the product by the original buyers C)Be able to separate buyers into different markets with different price elasticities D)Charge one price to all buyers
C
With a fixed downsloping demand curve, the pure monopolist can increase sales only by ____
Charging a lower price
A pure monopoly firm will never charge a price in the inelastic range of its demand curve because lowering price to get into this region will: A)Increase total revenue, decrease total cost, and decrease profit B)Decrease total revenue, total cost, and profit C)Increase total revenue, increase total cost, and decrease profit D)Decrease total revenue, increase total cost, and decrease profit
D
Price discrimination for concessions at ball parks is not applied to adults and children because: A)Adults' demand for food is elastic and children's demand for food is inelastic B)Children's demand for food is elastic and adults' demand for food is inelastic C)There can be exchange of the product from adults, who buy it at a lower price, to children D)There can be exchange of the product from children, who buy it at a lower price, to adults
D
The MR curve lies below the demand curve in this figure because the: A)Demand curve is linear (a straight line) B)Demand curve is highly inelastic throughout its full length C)Demand curve is highly elastic throughout its full length D)Gain in revenue from an extra unit of output is less than the price charged for that unit of output
D
This pure monopolist: A)Charges the highest price that it could achieve B)Earns only a normal profit in the long run C)Restricts output to create an insurmountable entry barrier D)Restricts output to increase its price and total economic profit
D
When its price is set to achieve the most efficient allocation of resources (P = MC), the regulated monopoly is likely to suffer losses
Dilemma of regulation
Because market demand is not perfectly elastic, the monopolist's demand curve is ____
Downsloping
For natural monopolies subject to rate regulation, the price that would allow the regulated monopoly to earn a normal profit
Fair-return price
True or false? A monopolist always seeks the highest price
False
As with any monopolist, a natural monopolist may, instead, set its price ____ and obtain substantial economic profit
Far above ATC
Monopoly price can be reduced and output increased through ____
Government regulation
In general, a monopoly transfers ____ from consumers to the owners of the monopoly
Income
Because the pure monopolist is the industry, its demand curve ____ the market demand
Is
Government may also limit entry into an industry or occupation through ____
Licensing
The monopolist seeks maximum total profit, not ____
Maximum unit profit
Price discrimination is possible when the following conditions are met:
Monopoly power, market segregation, no resale
Monopolistic firms tend ____ toward X-inefficiency than competitive producers do
More
A monopoly firm is referred to as a ____ if the market demand curve intersects the long-run ATC curve at any point where average total costs are declining
Natural monopoly
The value of a product to each user, including existing users, increases as the total number of users rises
Network effects
Another name for simultaneous consumption is ____
Nonrivalrous consumption
The exclusive right of an inventor to use, or to allow another to use, her or his invention
Patent
The socially optimal price suffers from a potentially fatal problem:
Pr may be so low that average total costs are not covered
The practice of selling a specific product at more than one price when the price differences are not justified by cost differences
Price discrimination
Economists summarize this fact by saying that firms with downsloping demand curves are ____
Price makers
____ can simultaneously reduce price, increase output, and reduce the economic profit of monopolies
Price regulation
Locally regulated monopolies are commonly called ____
Public utilities
When a single firm is the sole producer of a product for which there are no close substitutes
Pure monopoly
Any activity designed to transfer income or wealth to a particular firm or resource supplier at someone else's, or even society's, expense
Rent-seeking behavior
____ is what leads to most patentable inventions and products
Research and development (R&D)
A product's ability to satisfy a large number of consumers at the same time
Simultaneous consumption
The main characteristics of pure monopoly:
Single seller, no close substitutes, price maker, blocked entry, nonprice competition
The regulated price Pr that achieves allocative efficiency
Socially optimal price
True or false? Monopoly yields neither productive nor allocative efficiency
True
True or false? The pure monopolist has no supply curve
True
Monopolists can charge higher-than-competitive prices that result in an ____ of resources to the monopolized product
Underallocation
The general view of economists is that a pure monopolist ____ technologically progressive
Will not be
When a firm produces output at a higher cost than is necessary to produce it
X-inefficiency