Microeconomics Chapter 11
Which of the following steps are necessary to determine the profit-maximizing level of output, profit-maximizing price, and economic profit in pure monopoly?
Employ the profit-maximizing rule of MR=MC. Identify the profit-maximizing price and output by finding the price/output combination at MR=MC.
True or false: A firm is producing 24 units of output. At the 24th unit of output, marginal revenue is $5, and marginal cost is $4; at the 25th unit of output, marginal revenue is $4.50, and marginal cost is $4.50; at the 26th unit of output, marginal revenue is $4, and marginal cost is $5. This firm made the correct choice by producing only 24 units of output and then stopping.
False
True or false: A monopolist will charge the highest price possible.
False
True or false: For a pure monopolist, total revenue increases at an increasing rate.
False
Which of the following two terms are synonymous in a pure monopoly?
Firm and industry
In a pure monopoly, marginal revenue is less than price for every unit of output except which one?
The first
Why are efforts to enter such industries as commercial aircraft or household laundry equipment so rare?
The industries require economies of scale to be profitable, which is expensive and risky to establish.
Which of the following are reasons that a monopolist is considered a price maker?
The monopolist exerts control over the price. The monopolist controls the total quantity supplied.
Which statement about demand curves in a pure monopoly is true?
The monopolist's demand curve is also the industry demand curve.
Which of the following reasons explains why a professional sports team can be considered a monopoly?
They are the sole suppliers of specific services in a large geographic area.
How do network effects create barriers to entry in the social media industry?
They discourage people from using lesser-known networks.
When faced with continuing losses, what do the owners of a monopoly do?
They move their resources to alternative industries in the long run.
Which of the following are the main characteristics of a pure monopoly?
Unavailability of close substitutes for its products Control over the price Blocked entry for other firms Presence of a single seller
How common are examples of less pure forms of monopoly?
Very common
Dentsply, a dominant American maker of false teeth, unlawfully prevented independent distributors of false teeth from carrying competing brands. This action is an example of Blank______.
a created entry barrier
A monopolist will never choose a price-quantity combination where price reductions cause:
a decrease in total revenue
A monopolist will not seek the highest price possible because
a monopolist seeks maximum profit, not maximum price.
The exclusive right of an inventor to use, or to allow another to use, her or his invention is called:
a patent
A natural monopolist may obtain substantial economic profit by setting a price Blank______.
above average total cost (ATC)
At the profit-maximizing (loss-minimizing) output for a monopoly, if average revenue is less than average total costs, then the monopoly is experiencing
an economic loss.
The monopolist's level of output is not at the minimum point of Blank______, meaning it will not be productively efficient.
average total cost
As an example of Blank______, the Federal Communications Commission licenses only so many radio and television stations in each geographic area.
barriers to entry
Marginal revenue is less than price at every unit of output because the monopolist
could have sold these prior units at a higher price if it had not produced and sold the extra output.
Economies of scale refer to Blank______ average total costs with added firm size.
declining
The key difference between a pure monopolist and a purely competitive seller lies on the Blank______ side of the market.
demand
Monopolists that have Blank______ products engage mainly in advertising their products' attributes, while those that have Blank______ products engage primarily in public relations advertising.
differentiated; standardized
New firms have difficulty achieving the large size necessary to acquire economies of scale due to the Blank______.
difficulty of securing large amounts of financing
Price makers are firms with:
downward-sloping demand curves
A firm positions itself in the best profit-maximizing (or loss-minimizing) level of production if the amount of output reflects the point at which the last unit's marginal revenue is equal to its marginal cost because
each unit of output prior to MR = MC earns more revenue for the firm than its costs. each unit of output after the MR = MC amount will earn less revenue than its costs.
Total Blank______ is found by multiplying per-unit profit by the profit-maximizing output.
economic profit
Modern technology can be a cause of extensive Blank______.
economies of scale
The monopolist wants a price-quantity combination to fall in the Blank______ section of its demand curve, where a lower price means Blank______ total revenue.
elastic; greater
Production occurs up to that level of output at which price Blank______ marginal cost, resulting in allocative efficiency under pure competition.
equals
Compared to a pure competitor, a monopolist finds it profitable to charge a Blank______ price and supply a Blank______ quantity.
higher; lower
For a pure monopolist, total revenue Blank______.
increases at a diminishing rate
When demand is elastic and marginal revenue is positive, total revenue must be
increasing
A monopolist does not have a supply curve because:
it does not equate price with marginal cost there is no single, unique price associated with each level of output
The profit-maximizing monopolist avoids the inelastic segment of its demand curve because
it would mean lowering price and increasing output, which leads to less total revenue.
Government creates ___ barriers to entry.
legal
With a fixed downward sloping demand curve, the pure monopolist can only increase sales by charging a Blank______ price.
lower
Firms with downward-sloping product demand curves are called price ___.
makers
The change in total revenue associated with a one-unit change in output is called ___ revenue.
marginal
In a pure monopoly, Blank______ is less than the price for every unit of output except the first.
marginal revenue
A(n) Blank______ is able to maintain an economic profit in the long run because there are no new entrants to increase supply, drive down price, and eliminate economic profit.
monopoly
When the market demand curve crosses the long-run average total cost curve where average total costs are declining, the firm is called a(n)
natural monopoly
Because Intel provides 80% of the central microprocessors used in personal computers, it is a:
near-monopoly
Marginal revenue is ___ (positive/negative) when total revenue is diminishing.
negative
Jamilla is trying to decide which social media platform to join. Platform A has 10,000 users but none of her friends are on it, while platform B has 100,000 users and many of her friends are already signed up. Because of this, Jamilla finds more value in platform B and decides to sign up. In this case, Jamilla's decision is influenced by the presence of Blank______.
network effects
In the long run, a monopolist must obtain, at a minimum, a(n) Blank______ profit to prevent going out of business.
normal
In the long run, only Blank______ for a pure competitor are possible, whereas a monopoly earns Blank______.
normal profits; economic profits
To guard against excessively high prices to consumers, the government Blank______.
specifies the price natural monopolies may charge
A pure monopoly exists when a single firm is the sole producer of a product for which there are no close Blank______.
substitutes
Based on the figure of the ATC curve of a chosen industry, the per-unit cost for one producer selling 200 units of output would be $10. If the industry instead supported two producers, each with an output of 100 units, the average per-unit cost for each firm would likely be Blank______.
$15
The world's nations have agreed on a uniform patent length of how many years?
20
Which of the following describes what "no close substitutes" means as it relates to consumers and a pure monopoly?
A consumer must either buy the monopolized product or do without it entirely.
Which of the following are examples of geographic monopolies?
A small town with one restaurant A small town served by one airline A small town with one railroad
Which of the following does the monopolist not have?
A supply curve
Why might a monopolist accept a less-than-maximum per-unit profit?
Additional sales more than compensate for the lower profit per unit.
For the monopolist, less total revenue caused by a lower price and greater output is the reason for which of the following?
Avoiding the inelastic segment of the industry's demand curve.
How can imperfect competitors influence price?
By changing the quantity they produce
Which of the following exists when a single firm is the sole producer of a product for which there are no close substitutes?
Pure monopoly
How common are examples of pure monopoly?
Rare
Which of the following explains why a pure monopolist is able to maintain an economic profit in the long run?
There are no new entrants to increase supply, drive down price, and eliminate profit.
A ___ (one word) is the exclusive right of an inventor to use, or allow another to use, her or his invention.
patent
Drawing a vertical line from the profit-maximizing output on the horizontal axis to the demand curve represents the Blank______.
price
Monopolies that produce standardized products engage mainly in Blank______.
public relations advertising
The monopolist seeks maximum ___ profit, not maximum unit profit.
total
Which of the following is a reason for a monopoly's loss of economic profit?
Changes in tastes that reduce demand for a product
Which of the following describes why marginal revenue is less than price for monopolists?
Because the lower price of the extra unit of output also applies to all prior units of output
How does a monopolist change the price of its product?
By changing the quantity of the product it produces.
With a fixed downward-sloping demand curve, how can a monopolist increase sales?
By charging a lower price
How is economic profit determined?
By multiplying per-unit profit by the total quantity produced
It is difficult to start up a major league sports team because existing professional teams have contracts with the best players and long-term leases on stadiums. Which barrier to entry does this illustrate?
Control of a key resource
What aspect of the market defines the crucial difference between a pure monopolist and a purely competitive seller?
The demand curve
Which of the following are reasons for a monopoly's loss of economic profit?
Change in tastes reducing demand Upward-shifting cost curves caused by escalating resource prices
What is the shape of the product demand curve for a pure monopolist?
Downward sloping
Which are types of barriers to entry?
Economic Technological Legal
Which of the following is more likely for a pure monopolist than for a pure competitor?
Economic profit
Which of the following are characteristics of public utilities?
Government owned or regulated Monopolies or near monopolies
Which type of competitors can influence price through their own output decisions?
Imperfect
___ competitors include pure monopolists, oligopolists, and monopolistic competitors.
Imperfect
When marginal revenue is negative, what is happening to total revenue?
It is diminishing.
What is true of total revenue when marginal revenue is positive?
It is increasing.
How do economies of scale affect long-run average total costs for a firm?
Long-run average total costs decline over a wide range of output.
If producing is preferable to shutting down, a profit-seeking monopolist will produce up to the output at which Blank______.
MR = MC
___ power achieved through patents may be self-sustaining because the profit from one patent can finance the research required to develop new patentable products.
Monopoly
What is the term used to describe a situation where a single firm has the bulk of sales in a specific market?
Near-monopoly
The value of a social media app rising as the number of individual users increases indicates the presence of which of the following?
Network effects
Which of the following are assumptions made in the model of pure monopoly?
No unit of government regulates the firm. Patents, economies of scale, and resource ownership secure the firm's monopoly. The firm is a single-price monopolist and charges the same price for all units of output.
Which of the following are entry barriers created by monopolists?
Price reductions Increased advertising
What did American Express do when it prevented the merchants who signed up to accept American Express credit cards from promoting rival cards to their customers?
The company created a barrier to trade.
A firm's manager is given the following information: To sell 4 units of output, a price of $132 must be charged; this level of output reflects marginal revenue of $102 and marginal costs of $60. If the firm wants to sell 5 units of output, a price of $122 must be charged; this reflects marginal revenue of $82 and marginal costs of $70. To sell 6 units of output, a price of $112 must be charged; at this level of output, marginal revenue will be $62 and marginal costs $80. What should the manager do?
Produce 5 units of output and charge $122.
Which of the following competitors are imperfect?
Pure monopolists Monopolistic competitors Oligopolists
Natural gas and electricity are both examples of which type of monopoly?
Standardized
At output levels prior to MR=MC, marginal Blank______ is higher in comparison to marginal Blank______.
revenue; cost
In a purely competitive industry:
the demand curve for each individual firm is perfectly elastic, while that for the industry is downward-sloping
Comparing total revenue and total cost at each possible level of production and choosing the output with the greatest possible difference is another way to determine:
the profit-maximizing output
Marginal revenue is the change in Blank______ revenue associated with a single-unit change in output.
total
The profit-maximizing level of output can be determined by comparing Blank______.
total revenue and total cost at each possible level of production and choosing the output with the greatest positive difference