Chapter 11

Question 1

Which of the following exists when a single firm is the sole producer of a product for which there are no close substitutes?

Answer 1

pure monopoly

pure monopoly exists when a single firm is the sole producer of a product for which there are no close substitutes

Question 2

Which of the following are the main characteristics of a pure monopoly?
* Unavailability of close substitutes for its products
* Presence of at least two sellers
* Availability of multiple substitutes of its products
* Ease of entry for other firms
* Blocked entry for other firms
* Control over the price
* Presence of a single seller

Answer 2

• Unavailability of close substitutes for its products
• Blocked entry for other firms
• Control over the price
• Presence of a single seller

pure monopoly: a market structure in which one firm sells a unique product, into which entry is blocked, in which the single firm has considerable control over product price, and in which nonprice competition may or may not be found.

Question 3

The firm and ____ are synonymous in pure monopoly.

Answer 3

the industry

Question 4

Which characteristic of pure monopoly requires a consumer to buy the monopolized product or do without it entirely?

Answer 4

no close substitutes

Question 5

Which of the following are characteristics of public utilities?
* government owned or regulated
* low barriers to entry
* monopolies or near monopolies
* government has little control over price

Answer 5

• government owned or regulated
• monopolies or near monopolies

Question 6

How do economies of scale affect long-run average total costs for a firm?
* Long-run average total costs rise over a wide range of output.
* Long-run average total costs decline over a wide range of output.
* Long-run average total costs remain the same over a wide range of output.
* Not enough information is provided to determine the answer.

Answer 6

• Long-run average total costs decline over a wide range of output.

Question 7

Modern technology can be a cause of extensive ____.

Answer 7

economies of scale

Question 8

Economies of scale refer to ____ average total costs with added firm size.

Answer 8

declining

Question 9

____ utilities are government owned or regulated.

Answer 9

public

Question 10

How do network effects create barriers to entry in the social media industry?

Answer 10

They discourage people from using lesser-known networks.

Question 11

The strongest barriers to entry effectively block all ____.

Answer 11

potential competition

Question 12

Government creates ____ barriers to entry.

Answer 12

legal

Question 13

What are the two legal barriers to entry created by the government?

Answer 13

licenses and patents

Question 14

A ____ is the exclusive right of an inventor to use, or allow another to use, her or his invention.

Answer 14

patent

Question 15

Why does an inventor need to have her or his invention protected from rivals?

Answer 15

Rivals will use the invention without having shared in the effort and expense of developing it.

Question 16

The presence of network effects can predispose an industry toward which of the following?
* price-setting
* diversification
* monopoly
* competition

Answer 16

• monopoly

Question 17

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?

Answer 17

control of a key resource

Question 18

Slashing prices is an example of an entry barrier created by a(n) ____.

Answer 18

monopolist

Question 19

Patents, economies of scale, and resource ownership are all assumptions of the pure ____ model.

Answer 19

monopoly

Question 20

Marginal revenue is less than price at every unit of output because the monopolist
* could have sold these prior units at a price equal to marginal cost
* could have sold these prior units at a price higher than demand
* could have sold these prior units at a higher price if it had not produced and sold the extra output.
* could have sold these prior units at a lower price if it had not produced and sold the extra output.

Answer 20

• could have sold these prior units at a higher price if it had not produced and sold the extra output.

Question 21

Marginal revenue is the change in ____ revenue associated with a single-unit change in output.

Answer 21

total

Question 22

____ of essential property is a barrier to entry into an industry.

Answer 22

control

Question 23

Firms with downward-sloping product demand curves are called price ____.

Answer 23

maker

Question 24

Which of the following are entry barriers created by monopolists? (More than one answer may be correct.)
* price reductions
* increased advertising
* imposition of tariffs and quotas
* collaboration with government

Answer 24

• price reductions
• increased advertising

Question 25

The monopolist wants a price-quantity combination to fall in the ____ section of its demand curve, where a lower price means ____ total revenue.

Answer 25

elastic; greater

Question 26

Which of the following are assumptions made in the model of pure monopoly? * Patents, economies of scale, and resource ownership secure the firm's monopoly. * No unit of government regulates the firm. * The firm is a multi-price monopolist and charges different prices for all units of output. * The firm is a single-price monopolist and charges the same price for all units of output. * The government regulates the firm.

Answer 26

* Patents, economies of scale, and resource ownership secure the firm's monopoly. * No unit of government regulates the firm. * The firm is a single-price monopolist and charges the same price for all units of output.

Question 27

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.

Answer 27

false

Question 28

A monopolist does not have a supply curve because: * it does not equate marginal revenue with marginal cost * it does not equate price with marginal cost * it does not produce at the minimum average total cost * there is no single, unique price associated with each level of output

Answer 28

* it does not equate price with marginal cost * there is no single, unique price associated with each level of output

Question 29

Price makers are firms with ____ demand curves.

Answer 29

downward-sloping ## Footnote they control output; therefore, they can "make the price"

Question 30

Why might a monopolist accept a less-than-maximum per-unit profit?

Answer 30

Additional sales more than compensate for the lower profit per unit.

Question 31

A(n) ____ 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.

Answer 31

monopoly

Question 32

The monopolist wants a price-quantity combination to fall in the ____ section of its demand curve, where a lower price means ____ total revenue.

Answer 32

elastic; greater

Question 33

What is the term used to refer to charging different prices to different buyers of a specific product?

Answer 33

price discrimination

Question 34

The monopolist seeks maximum ____ profit, not maximum unit profit.

Answer 34

total

Question 35

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 up price, and eliminate profit. * There are no new entrants to increase supply, drive down price, and eliminate profit. * There are no new entrants to decrease supply, drive up price, and eliminate profit. * There are no new entrants to decrease supply, drive down price, and eliminate profit.

Answer 35

* There are no new entrants to increase supply, drive down price, and eliminate profit.

Question 36

With a natural monopoly the demand curve intersects the long-run average total cost curve where the long-run average total cost curve is still ____.

Answer 36

falling

Question 37

If the objective of government is to achieve ____ efficiency, it should establish a legal price for the monopolist that is equal to its marginal cost.

Answer 37

allocative

Question 38

As an example of price discrimination, airlines charge higher fares to business travelers whose demand for travel is ____ and offer lower, more restricted fares to vacationers and others with more ____ demand.

Answer 38

inelastic; elastic

Question 39

Which of the following are potential solutions to the economic losses incurred by a regulated monopoly caused by socially optimal pricing? * tariffs * public subsidies * production quotas * price discrimination

Answer 39

* public subsidies * price discrimination

Question 40

A regulated monopoly is likely to suffer losses when ____.

Answer 40

* price is set to marginal cost (P = MC) * price is set to achieve the most efficient allocation of resources

Question 41

The demand curve intersects the natural monopolist's long-run average total cost curve at a point where long-run average total costs are still falling, due to ____.

Answer 41

economies of scale