Market Structure: Comparing Monopoly to Perfect Competition

Unlike a firm in pure competition, a monopoly is able to: A. reap economic profits in the long-run as long as sufficient barriers to entry exist, legal or illegal. B. generate only normal profits in the long-run. C. sustain consistent economic losses and still survive in the long-run due to substantial economies of scale. D. remain viable only in the short-run if it operates in an economically inefficient manner. E. make economic profits even if short-run total costs exceed total revenue.

A. reap economic profits in the long-run as long as sufficient barriers to entry exist, legal or illegal.

Economists would be willing to say that price discrimination is more efficient than single-price monopoly pricing if it results in: A. higher total revenue for the firm. B. an increase in net benefit for society. C. the producer capturing some of the consumer's surplus. D. some consumers paying a lower price than they would under a single-price monopoly. E. all of the above.

B. an increase in net benefit for society.

An indication of the technological inefficiency of the monopolist, when compared to the perfect competitor, is that: A. the monopolist's price is set above the marginal cost of the good. B. the demand curve facing the monopolist is downward sloping. C. in the long-run, a monopolist is not forced to produce at the minimum point of the average total cost curve. D. a monopolist earns more economic profit in the long-run than does the competitive firm. E. the monopolist has no competition to force him to produce where MC = MR

C. in the long-run, a monopolist is not forced to produce at the minimum point of the average total cost curve.

The differences between a monopoly firm and a perfectly competitive firm include all of the following except: A. the demand curve for the monopoly is downward sloping and for the perfectly competitive firm is horizontal. B. marginal revenue is less than price for the monopoly and equal to price for the perfectly competitive firm. C. marginal cost is upward sloping for a monopoly firm and horizontal for a perfectly competitive firm. D. in the short-run, the monopoly will produce such that P > MC while perfectly competitive firms will produce such that P = MC. E. in the long-run monopolies can sustain positive economic profits while perfectly competitive firms cannot.

C. marginal cost is upward sloping for a monopoly firm and horizontal for a perfectly competitive firm.

The socially optimal (the allocatively efficient) level of output occurs where: A. marginal revenue is maximized. B. economic profits are maximized. C. price equals marginal cost. D. marginal revenue equals marginal cost. E. total benefit to society is maximized.

C. price equals marginal cost.

The simple analysis of monopoly that we carried out in class suggested that monopolists are inefficient from society's viewpoint. However, monopolists may not always be inefficient. Which of the following is not an argument which could be used to justify the existence of monopoly power on the basis of economic efficiency? A. entry and exit are almost always relatively costless so that the mere threat of competition will force the monopolist's price to the competitive price. B. when substantial economies of scale exist, the monopolist may be more efficient than any number of smaller firms. C. when substantial economies of scope exist, the monopolist may be more efficient than any number of smaller firms. D. monopolist firms always have more incentive to innovate than perfectly competitive firms.

D. monopolist firms always have more incentive to innovate than perfectly competitive firms.

Price discrimination: A. tends to decrease the allocative inefficiency of a monopolist. B. will provide more total revenue to the firm than the profit-maximizing price the monopolist would set in the absence of such discrimination. C. generally results in greater output than under a single price monopoly. D. when it is perfect, causes the monopolist to produce where marginal social cost is just equal to marginal social benefit. E. all of the above.

E. all of the above.