Chapter 15

Question 1

monopoly

Answer 1

a firm that is the sole seller of a product without close substitutes; price maker

Question 2

fundamental cause of monopoly

Answer 2

barrier to entry

a monopoly remains the only seller in its market because other firms cannot enter the market and compete with it

Question 3

barriers to entry (3)

Answer 3

1. ownership of a key resource
2. the government gives a single firm the exclusive right to produce some good
3. costs of production make a single producer more efficient than a large number of producers(natural monopoly)

Question 4

effects on total revenue when monopoly increases amount it sells (2)

Answer 4

1. the output effect (quantity increases)

2. the price effect (price falls)

Question 5

price discrimination

Answer 5

the practice of selling the same good at different prices to different customers, even though the costs for producing for the two customers are the same

Question 6

perfect price discrimination

Answer 6

when the monopolist knows exactly the willingness to pay of each customer and can charge each customer a different price

Question 7

government responds to the problem of monopoly (4)

Answer 7

1. making monopolised industries more competitive
2. regulating the behaviour of monopolies (what prices they charge)
3. turning some private monopolies into public enterprises
4. do nothing