question
What happens when an oligopoly grows very large?
answer
the price effect disappears
question
why monopolies arise
answer
resources, government, natural
question
When price is above marginal cost, selling one more unit of output at the going price will increase profit:
answer
the output effect
question
monopolistic profit maximization in terms of Q and MC and MR
answer
set Q to MR=MC (and then use the demand curve to find price)
question
monopolistic competition relation to demand curve
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the demand curve defines profit (or not)
question
if the p is above ATC for an MC firm
answer
the firm makes profit
question
if the p is below ATC for an MC firm
answer
the firm looses money
question
a Monopolistically competitive firm in the long run
answer
P = ATC ( and the firm earns zero profit the demand curve shifts depending on how many sellers are in the market)
question
equilibrium in an imperfectly competitive firm
answer
quantity is the line through the point MR=MC and price is read from the demand curve
question
price and quantity in an imperfectly competitive firm in the long run
answer
the point where MC=ATC (the minimum point of ATC)
question
Average cost pricing
answer
D=ATC at P
question
Marginal cost pricing
answer
D=MC (this results in negative profit for a natural monopoly)
question
If a monopolist faces a downward-sloping market demand curve, its marginal revenue
answer
is always less than the price of the units it sells.
question
Firms may be prevented from price discrimination, if
answer
buyers can arbitrage
question
The practice of selling a product to retailers and requiring the retailers to charge a specific price for the product is called
answer
retail price maintainence
question
Predatory pricing is best exemplified when a firm
answer
cuts its prices temporarily in order to drive out any competition
question
If regulators required firms in monopolistically competitive markets to set price equal to marginal cost,
answer
firms would most likely experience economic losses
question
The deadweight loss that is associated with a monopolistically competitive market is a result of
answer
price above marginal cost
question
When the loss from a business-stealing externality exceeds the gain from a product-variety externality,
answer
there are likely to be too many firms in a monopolistically competitive market
question
Defenders of advertising argue that it is not rational for profit-maximizing firms to spend money on advertising for products that have
answer
inferior quality
question
In some countries, brand name fast-food restaurants are not allowed to operate. Such restrictions are likely to
answer
reduce the competitive nature of local fast-food markets
question
A firm that has a monopoly on water (which is a necessity) can charge a high price for water under which circumstance?
answer
even if the marginal cost of producing water is low
question
What is the monopolists profit under the following conditions? The profit-maximizing price charged for goods produced is $12. The intersection of the marginal revenue and marginal cost curves occurs where output is 10 units, marginal cost is $8, and average total cost is $7.
answer
50 (5 times 10)
question
when is it possible for a natural monopoly to evolve into a competitive market
answer
as a market expands
question
What would likely result from a law that restricts the ability of hotels and motels to advertise on billboards outside of a resort community?
answer
reduced efficiency of local lodging markets
question
For what reason is the prisoner's dilemma an important game to study?
answer
It identifies the fundamental difficulty in maintaining cooperative agreements
question
In Canada, in the majority of cases where there is a natural monopoly, how does the government usually deal with the problem?
answer
through regulation
question
In order for antitrust laws to raise social welfare, what must the government do?
answer
It must be able to determine which mergers are desirable and which are not
question
Why would lack of cooperation between criminal suspects be desirable for society as a whole?
answer
The police will be able to convict more criminals
question
Marks: 1
Scenario 16-5
Assume that a local bank sells two services, chequing accounts and ATM card services. Mr. Tang is willing to pay $8 a month for the bank to service his chequing account and $2 a month for unlimited use of his ATM card. Ms. Gardner is willing to pay only $5 for a chequing account, but is willing to pay $9 for unlimited use of her ATM card. To keep this example simple, assume that the bank can provide each of these services at zero marginal cost.
Scenario 16-5
Assume that a local bank sells two services, chequing accounts and ATM card services. Mr. Tang is willing to pay $8 a month for the bank to service his chequing account and $2 a month for unlimited use of his ATM card. Ms. Gardner is willing to pay only $5 for a chequing account, but is willing to pay $9 for unlimited use of her ATM card. To keep this example simple, assume that the bank can provide each of these services at zero marginal cost.
answer
10 dollars
question
When a monopolist increases the amount of output that it produces and sells, what happens to its average revenue and its marginal revenue?
answer
its average revenue decreases and its marginal revenue decreases
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