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Microeconomics
Monopoly
| Question | Answer |
|---|---|
| What are the characteristics of a monopoly? | -One seller -Barrier of entry |
| True or False - If a company controls the water supply in Houston, it will become a competitive firm. | False; the company controls a monopoly resource (water), which lessens competitions among other firms. |
| How does the government regulates the monopoly? | It gives the monopoly exclusive right or patents to its product, making sure others would not use similar product. |
| What is natural monopoly? | A single firm can supply goods and services at a lower cost than other firms. |
| Although the competitive firm's demand curve is horizontal due to no price change, the monopoly's demand curve will_____________ | Go down; because the consumers would not buy the product at higher price and the prices increase if the number of output reduces. |
| For the monopoly, Price is always greater than________ for profit maximization. | Marginal revenue = Marginal cost |
| (Price - Average Total Cost)*Quantity = | Profit |
| Why doesn't the monopoly have supply curve? | It is "price maker" not "price taker"; the price doesn't depend on the quantity and they are jointly related with marginal revenue, marginal cost, and demand curve. |
| Pretend that the monopoly has a patent on televisions, and its patent expires. What happens next? | It becomes competitive because it no longer has control of the product. |
| What is price discrimination? | Selling the same good with different price to different buyers |
| Since the price is greater than the marginal cost, then there will be a ___________. | Deadweight loss |
| In a ______________, the company charges the price based on each buyer's willingness to pay, captures the rest of the consumer surplus as profit, and there is no deadweight loss. | Perfectly price discrimination |
| Why is perfectly price discrimination not possible in the real world? | Buyers wouldn't reveal their willingness to pay to sellers, so the company divides the consumers into groups. |
| If the business traveler spends much money on airline tickets, and the leisure traveler pays a little. What is an example of? | Price discrimination |
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