question
What are the 4 characteristics of a monopoly
answer
One firm
Unique product
Price Maker, control over price
High barriers to entry
Unique product
Price Maker, control over price
High barriers to entry
question
What are the barriers to entry
answer
monopoly in resources, govt created monopolies, legal barriers, structural barriers
question
Monopoly in resources
answer
diamond company owns all mines
question
Govt created monopolies
answer
govt gives one firm exclusive right to sell or produce a good/service such as USPS, usually done for national security purposes
question
Legal barriers and pros and cons
answer
patents and copy right laws, benefit: encourages research and development
cons: firms can charge a high price
cons: firms can charge a high price
question
structural barriers
answer
Arise due to cost structure of industry, natural monopoly
Cable company needs infrastructure like the cables that give a signal, high fixed costs (cables) but very small marginal costs doesn't cost much to provide service for additional person
More efficient to have one firm service the market rather than multiple
Cable company needs infrastructure like the cables that give a signal, high fixed costs (cables) but very small marginal costs doesn't cost much to provide service for additional person
More efficient to have one firm service the market rather than multiple
question
What are 3 differences between monopoly vs perfect competition
answer
Monopoly can influence price, perfectly competitive firms cannot
Monopolists faces the entire market demand curve, perfectly competitive firm faces horizontal demand curve
Perfectly competitive firm can sell as much as its wants at a given price but a monopolist has to reduce its price to sell more output
Monopolists faces the entire market demand curve, perfectly competitive firm faces horizontal demand curve
Perfectly competitive firm can sell as much as its wants at a given price but a monopolist has to reduce its price to sell more output
question
Price =
answer
AR, greater than MR
question
Under monopoly AR is greater or less than MR
answer
greater
question
When MR>MC
answer
increase production
question
When MR<MC
answer
decrease output
question
What are 3 public policies towards monopolies
answer
increase competition using antitrust laws( govt can break up companies), govt could regulate prices, public ownership of monopolies
question
1. A monopolist faces:
A perfectly elastic demand curve
A horizontal demand curve
A downward sloping demand curve
A perfectly inelastic demand curve
A perfectly elastic demand curve
A horizontal demand curve
A downward sloping demand curve
A perfectly inelastic demand curve
answer
C
question
2. A natural monopoly is most likely to occur in which of the following industries?
An industry where fixed costs are very large relative to marginal costs
The diamond mining and marketing industry because one firm can control a key resource
The pharmaceutical industry because the development and approval of drugs through the FDA can take more than ten years
An industry where there are easy mergers of companies
An industry where fixed costs are very large relative to marginal costs
The diamond mining and marketing industry because one firm can control a key resource
The pharmaceutical industry because the development and approval of drugs through the FDA can take more than ten years
An industry where there are easy mergers of companies
answer
A
question
3. If a theatre company expects $250,000 in ticket revenue from five performances and $288,000 in ticket revenue if it adds a sixth performance, the
Cost of staging the sixth performance is probably higher than the cost of staging the previous 5
Marginal revenue of the 6th performance is 38,000
Marginal revenue is 288,000
Company will be making a loss on the sixth performance because its ticket sales will be less than average revenue received from the previous 5
Cost of staging the sixth performance is probably higher than the cost of staging the previous 5
Marginal revenue of the 6th performance is 38,000
Marginal revenue is 288,000
Company will be making a loss on the sixth performance because its ticket sales will be less than average revenue received from the previous 5
answer
B
question
4. If a monopolist marginal revenue is 50 per unit and its marginal cost is 35 then
To maximize profit the firm should continue to produce the output it is producing
To maximize profit the firm should increase output
To maximize profit the firm should decrease output
To maximize profit the firm should continue to produce the output it is producing
To maximize profit the firm should increase output
To maximize profit the firm should decrease output
answer
B
question
14. Compared to perfect competition, the consumer surplus in a monopoly
Is higher because price is higher and output is the same
Is unchanged because price and output are the same
Is lower because price is higher and output is lower
Is eliminated
Is higher because price is higher and output is the same
Is unchanged because price and output are the same
Is lower because price is higher and output is lower
Is eliminated
answer
C
question
17. Which of the following is not an example of a barrier to entry?
Mighty Mitch's mining company owns a plot of land which lies on the only large deposit of tanzanite in the world
An entrepreneur opens a popular new restaurant
A pharmaceutical company obtains a patent for a specific high blood pressure medication
A musician obtains a copyright for her original song
Mighty Mitch's mining company owns a plot of land which lies on the only large deposit of tanzanite in the world
An entrepreneur opens a popular new restaurant
A pharmaceutical company obtains a patent for a specific high blood pressure medication
A musician obtains a copyright for her original song
answer
B
question
18. A monopolist's average revenue is always
Greater than the price of its product
Equal to the price of its product
Equal to marginal revenue
Less than the price of its product
Greater than the price of its product
Equal to the price of its product
Equal to marginal revenue
Less than the price of its product
answer
B
question
19. A monopoly firm maximizes its profit by producing Q = 500 units of output. At that level of output, its marginal revenue is $30, its average revenue is $60, and its average total cost is $34. At Q = 500, the firm's profit is
17,000
30,000
15,000
13,000
17,000
30,000
15,000
13,000
answer
D
question
20. The deadweight loss associated with a monopoly occurs because the monopolist
Produces an output level greater than the socially optimal level
Maximizes profits
Equated marginal revenue with marginal cost
Produces an output level less than the socially optimal level
Produces an output level greater than the socially optimal level
Maximizes profits
Equated marginal revenue with marginal cost
Produces an output level less than the socially optimal level
answer
D
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