Chapter 13

Question 1

Five factors that lead to monopoly

Answer 1

1) Control over key inputs.
2) Economics of scale.
3) Patents
4) Network Economies
5) Government licenses

Question 2

Monopoly is market structure in which…

Answer 2

…a single seller of a product with no close substitutes serves the entire market

Question 3

The distinction between monopoly and competition is

Answer 3

Competition: the demand curve facing the individual competitive firm is horizontal
Monopolist: the demand curve is simply the downward-sloping demand curve for the entire market

Question 4

What’s one practical measure for deciding whether a firm enjoys a significant monopoly power

Answer 4

Examine the cross-price elasticity of demand for its close substitutes

Question 5

Natural monopoly

Answer 5

A market that is most cheaply served by a single firm

Question 6

What determines if we have a natural monopoly

Answer 6

The degree of returns to scale, not the slope of the LAC curve

Question 7

Economies of scale refers to

Answer 7

The situation where a single company with a large market share can produce goods at a lower cost per unit by producing in large quantities

Question 8

Network economics

Answer 8

When a single product becomes dominant in the market, possibly via network effects that encourage the users to adopt a single product

Question 9

Government licenses or Franchises

Answer 9

Where the law prevents anyone other than a government-licensed firm from doing business

Question 10

The most important of the five factors for explaining monopolies that endure is

Answer 10

Economies of scale
Patents for example are transitory (not permanent)

Question 11

The effect of downward sloping demand curve is that

Answer 11

Total revenue is no longe proportional to output sold

Question 12

Marginal revenue is given by

Answer 12

MR = deltaTR/deltaQ

Question 13

Optimally condition for a monopolist

Answer 13

A monopolist maximises profit by choosing the level of output where marginal revenue equals marginal cost

Question 14

When Q is to the left of the midpoint of a straight line demand curve:
_____
when Q is to the right of the midpoint:
______
On the midpoint:
______

Answer 14

MR>0
MR<0
MR=0

Question 15

What happens to the total revenue when the price elasticity of demand is unity?

Answer 15

The total revenue reaches its maximum value

Question 17

The slope of the marginal revenue curve is

Answer 17

Twice that of the slope of the corresponding demand curve
(Only if the demand curve is also a straight line)

Question 18

A monopolist who should shut down in the short run

Answer 18

Whenever AVG revenue (the price value on the demand curve) is lower than the average variable cost for every level of output

Question 19

for a monopolist to sell a larger amount of output…

Answer 19

…it must cut its price - not only for the marginal unit but for all preceding units as well

Question 20

The total revenue curve that a monopolist faces is

Answer 20

Concave with a maximum

Question 21

Another useful way of thinking about marginal revenue…

Answer 21

…is to view it as the gain in revenue from new sales minus the loss in revenue from selling the previous output level at the
New
Lower
PRICE

Question 22

The monopolist chooses a ________ output level than if he had used a competitors criterion because the monopolist maximises profit by __________

Answer 22

Lower,
Expanding output until MC = MR

Question 23

For both the perfect competitor and monopolist
What is the relevant measure of the cost of expanding output???

Answer 23

Marginal cost

Question 24

The monopolist has no supply curve. Rather he has a….

Answer 24

….supply rule which is to equate the MR and MC

Question 25

The deadweight loss from monopoly (which measures the loss in efficiency in a market) is given by

Answer 25

The sum of the extra consumer and producer SURPLUSES that result from NOT exhausting all gains from exchange

Question 26

5 options for policymakers to respond to inefficiency of a profit-maximising monopolist

Answer 26

1) State ownership or management 2) State regulation of Private monopolies 3) Exclusive contracting for Natural Monopoly 4) Vigorous Enforcement of Antittrust Laws 5) A Laissez-faire Policy Towards Natural Monopoly

Question 27

X-inefficiency

Answer 27

A condition in which a firm fails to obtain maximum output from a given combination of inputs

Question 28

A profit maximising monopolist will NEVER choose a price that leaves them on the **inelastic** portion of the demand curve

Answer 28

As it would always be possible to raise profits by increasing price

Question 29

3rd Degree price discrimination

Answer 29

Different prices are charged in different markets or to different categories of consumer

Question 30

Arbitrage

Answer 30

The purchase of something for costless risk free resale at a higher price

Question 31

First degree price discrimination

Answer 31

Consumers are charged individual prices that capture ALL consumer surplus

Question 32

Second degree price discrimination

Answer 32

Different quantities of the food sell for different prices

Question 33

Total demand is highest when…

Answer 33

…price elasticity of demand is 1

Question 34

What kinds of economic and technological conditions are conducive to the formation of monopolies?

Answer 34

Some appropriate conditions are: large fixed costs and small marginal costs, large minimum efficient scale relative to the market, ease of collusion,

Question 35

whaza rate-of-return regulation

Answer 35

Rate-of-return regulation is a system where regulators set prices for regulated monopolies (like utilities) to cover their costs and allow a certain profit on their investment. It aims to ensure utilities earn a "fair" return, balancing the interests of consumers and investors.

Question 36

For a monopolist MR

Answer 36

For a monopolist MR