Chapter 15 - Monopoly

Question 1

Monopoly

Answer 1

A firm that is the sole seller of a product without close substitutes.

Question 2

Monopoly Resources

Answer 2

A key resource required for production is owned by a single firm.
Example: oil, diamonds

Question 3

Government Regulations

Answer 3

The government gives a single firm the exclusive right to produce some good or service.
Example: medical marijuana, U.S. postal

Question 4

The Production Process

Answer 4

A single firm can produce output at a lower cost then can a larger number of firms.
Example: water, sewage, electricity

Question 5

Natural Monopoly

Answer 5

A monopoly that arises because a single firm can supply a good or service to an entire market at a smaller cost than 2 or more firms could.

Question 6

The Output Effect

Answer 6

More output sold, Quantity is higher, tends to increase total revenue.

Question 7

The Price Effect

Answer 7

Price falls, tends to decrease total revenue.

Question 8

Price Discrimination

Answer 8

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

Question 9

Characteristics of a Monopoly

Answer 9

1. One firm in the industry.
2. Producing a product with no close substitutes. (No reasonable alternatives)
3. Firm is a price searcher. (Has some control over price)
4. Relatively high barriers of entry.
5. Little non-price competition. (No advertising)

Question 10

Barriers of entry to a Monopoly

Answer 10

1. Government Designated Monopolies (Patents)
2. Control of a Natural Resource (Iron or Diamond)
3. ‘Natural Monopolies (Significant economies of scale)

Question 11

Demand Curve for a Monopoly

Answer 11

Because of being the only producer, it faces a downward sloping demand curve.