Question 1

Monopoly:

Accepted Answer

Firm that’s the sole seller of a product without close substitutes (Has market power, Arises due to entry barriers)

Question 2

Barriers to Entry:

Accepted Answer

Monopoly Resources, Government Regulations, Production Process

Question 3

Monopoly Resources:

Accepted Answer

A single firm owns a key resource required for production; relatively rare in practice

Question 4

Government-Created Monopolies:

Accepted Answer

Gives a single-firm the exclusive right to sell a good or service

Question 5

Patent and Copyright Laws:

Accepted Answer

Lead to higher prices and higher profits; encourage some desirable behavior (provides incentives for creative activity)

Question 6

Natural Monopoly:

Accepted Answer

A single firm that can supply a good or service to an entire market at a lower cost than 2+ firms could

Question 7

Increasing quantity (Monopoly Revenue):

Accepted Answer

Output effect: Higher output increases revenue, Price effect: Lower price decreases revenue

Question 8

Marginal Revenue < Price:

Accepted Answer

To sell a larger Q, the monopolist must reduce the price on all the units it sells, Is negative if price effect > output effect

Question 9

Profit-maximizing quantity of output:

Accepted Answer

MR = MC

Question 10

MR > MC:

Accepted Answer

Increase production

Question 11

MC > MR:

Accepted Answer

Produce less

Question 12

Competitive Firms Price:

Accepted Answer

P = MR = MC

Question 13

Monopoly Firms Price:

Accepted Answer

P > MR = MC

Question 14

Monopoly Profit:

Accepted Answer

P > ATC, Profit = (P − ATC) × Q

Question 15

Monopoly Profit on Graph:

Accepted Answer

Area = Profit, Height = P - ATC, Width = Number of Units Sold

Question 16

Q and P in an Competitive Firm:

Accepted Answer

Has a supply curve that shows how its Q depends on P

Question 17

Q and P in a Monopoly Firm:

Accepted Answer

Q does not depend on P; Q and P are jointly determined by MC, MR, and the demand curve; no supply curve for monopoly

Question 18

Socially Efficient Quantity:

Accepted Answer

found where the demand curve and the marginal-cost curve intersect

Question 19

Monopolist Production/Selling:

Accepted Answer

produce and sell the quantity of output at which MR = MC, Produces less than the socially efficient quantity of output, Charges P > MR = MC

Question 20

Deadweight loss:

Accepted Answer

Triangle between the demand curve and MC curve

Question 21

Social Planner Total Surplus Maximization:

Accepted Answer

level of output where the demand curve and marginal-cost curve intersect

Question 22

Below Efficient Quantity:

Accepted Answer

the value of the good to the marginal buyer (as reflected in the demand curve) exceeds the marginal cost of making the good

Question 23

Above Efficient Quantity:

Accepted Answer

the value to the marginal buyer is less than marginal cost

Question 24

Monopoly Profit in Society:

Accepted Answer

Monopoly profit is not in itself necessarily a problem for society

Question 25

Monopoly Profit Inefficiency:

Accepted Answer

Monopoly produces Q < efficient quantity (Deadweight loss)

Question 26

Price discrimination:

Accepted Answer

The business practice of selling the same good at different prices to different customers

Question 27

Lessons About Price Discrimination:

Accepted Answer

rational strategy for a profit-maximizing monopolist, seller must be able to separate customers based on willingness to pay, Can raise economic welfare

Question 28

Perfect Price Discrimination:

Accepted Answer

Monopolist knows customer’s willingness to pay, Charges each customer a different price, Monopolist gets entire surplus (profit), No deadweight loss

Question 29

Without Price Discrimination:

Accepted Answer

Single price > MC, Consumer surplus, Producer surplus (Profit), Deadweight loss

Question 30

Public Policy (To Deal with Monopoly):

Accepted Answer

Try making monopoly industries more competitive, Regulate monopoly behavior, Turning some private monopolies into public enterprises, Do nothing

Question 31

Antitrust laws:

Accepted Answer

Sherman Antitrust Act, 1890; Clayton Antitrust Act, 1914

Question 32

Promote Competition:

Accepted Answer

Prevent mergers, Break up companies, Prevent companies from colluding to reduce competition

Question 33

Regulation:

Accepted Answer

Regulate the behavior of monopolists

Question 34

Regulation Problems with Marginal Cost Pricing:

Accepted Answer

Arise when ATC is declining, MC < ATC; No incentive to reduce costs

Question 35

Public Ownership:

Accepted Answer

Government unit can run monopoly

Question 36

Firm Ownership Affect on Cost of Production:

Accepted Answer

Private owners have an incentive to minimize costs, Public employees may become special-interest group and bend political system to their advantage

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Chap 16 Econ