Chapter 15 - Monopoly

Question 1

What alters the relationship between a firm’s costs and the selling price?

Answer 1

Market Power

Question 2

Who charges a price that exceeds marginal cost ?

Answer 2

A monopoly

Question 3

True or False:

A monopoly’s profits are unlimited

Answer 3

False

Question 4

Is a monopoly a price taker or a price maker?

Answer 4

A price maker

Question 5

What are the two conditions that have to be met in order for a firm to be considered a monopoly?

Answer 5

1. They have to be the only firm selling the product

2. There can’t be any substitutes for their product

Question 6

What is the fundamental cause of a monopoly?

Answer 6

Barrier to entry

Question 7

What stops other firms from entering into a market and becoming competition?

Answer 7

Barrier to entry

Question 8

What are the three sources of barrier to entry?

Answer 8

1. Monopoly resources
2. Government regulation
3. The production process

Question 9

A person owning the sole well in town is an example of:

a. Monopoly resources
b. Government regulation
c. The production process

Answer 9

a. Monopoly resources

Question 10

What are two important examples of government regulations?

Answer 10

Patent and copyright laws

Question 11

What is it called when a single firm can supply a good or service to an entire market at a smaller cost than could two or more firms?

Answer 11

A natural monopoly

Question 12

Does a monopoly have an upward or downward sloping demand curve?

Answer 12

A downward sloping demand

Question 13

What is the formula to find total revenue?

Answer 13

Price x quantity

Question 14

What is the formula to find average revenue?

Answer 14

Total revenue/quantity

Question 15

What is a monopoly’s average revenue always equal to?

Answer 15

The price of the product at a certain quantity

Question 16

True or False:

You should stop increasing production when revenue lost is greater than revenue gained

Answer 16

True

Question 17

What is the formula to find revenue lost?

Answer 17

(Initial Price – New Price) x Initial Quantity

Question 18

If the change in quantity sold has a negative effect/decreases total revenue then is there a price effect or a output effect?

Answer 18

There is a price effect

Question 19

If the change in quantity sold has a positive effect/increases total revenue then is there a price effect or a output effect?

Answer 19

There is a output effect

Question 20

True or False:

A monopoly’s marginal revenue is less than the price of its good

Answer 20

True

Question 21

Can a monopoly’s marginal revenue be negative?

Answer 21

Yes

Question 22

How do you find a monopoly’s marginal revenue?

Answer 22

Q2 total revenue - Q1 total revenue

Question 23

A monopoly increasing the amount of quantity sold has what two effects on total revenue?

Answer 23

1. Price effect

2. Output effect

Question 24

In a perfect competition is marginal revenue less than, equal to, or greater than price?

Answer 24

Equal to

Question 25

In a monopoly is marginal revenue less than, equal to, or greater than price?

Answer 25

Less than

Question 26

What are the two formulas to find a monopoly's profit?

Answer 26

1. TR - TC 2. (P - ATC) x Q Remember: P = TR/Q and ATC = TC/Q

Question 27

What is the formula to find total surplus?

Answer 27

Consumer surplus + producer surplus

Question 28

What is the formula to find consumer surplus?

Answer 28

Amount buyer is will to pay - the amount they pay

Question 29

What is the formula to fins producer surplus?

Answer 29

Amount seller receives - cost of production

Question 30

What is the triangle between the demand curve and MC curve called?

Answer 30

The deadweight loss

Question 31

What is the selling of the same good at different prices to different customers called?

Answer 31

Price discrimination

Question 32

Does a perfect price discrimination have deadweight loss?

Answer 32

No

Question 33

Do monopolies get the entire profit by using price discrimination?

Answer 33

Yes

Question 34

Do you have deadweight loss when you don't use price discrimination?

Answer 34

Yes

Question 35

Do you have consumer and producer surplus when you don't use price discrimination?

Answer 35

Yes