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Characteristics and Barriers to Trade
Monopoly Demand
Output and Price Determination
Price Discrimination and Regulated Monopoly
100
What are the five main characteristics of a pure monopoly?
1) Single seller 2) No close substitutes 3) Price maker 4) Blocked entry 5) Non-price competition
100
True or False. The monopolist's demand curve is down-sloping.
True
100
If producing is preferable to shutting down, a monopolist will produce the output at which _____ equals _____.
Marginal revenue equals marginal cost.
100
What is price discrimination?
The practice of selling a specific product at more that one price when the price differences are not justified by cost differences.
200
Name three examples of monopolies.
* Government-owned or government-regulated public utilities. (Ex. Natural gas and electric companies, the water company, the cable TV company, and the local telephone company) * Single firms that have the bulk of sales in a specific market. (Ex. Intel - Microprocessors, First Data Corporation - Money Transfers, etc.) * Professional Sports Teams
200
True or False. The market demand for a monopoly is perfectly elastic.
False.
200
True or False. The pure monopolist's supply curve is up-sloping.
False. The pure monopolist has no supply curve.
200
What are the three conditions for price discrimination?
1) Monopoly Power - The seller must be a monopolist or, at least, must possess some degree of monopoly power, that is, some ability to control output and price. 2) Market Segregation - The seller mus be able to segregate buyers into distinct classes. 3) No resale - The original purchaser cannot resell the product or service.
300
What are two legal barriers to entry in a monopolistic industry?
1) Patents - Exclusive rights of individuals to use, or to allow another to use their invention. 2) Licenses
300
True or False. The demand curve of a monopoly is the market demand curve.
True. The monopolist IS the industry.
300
True or False. The likelihood of economic profit is greater for a pure monopolist than a for a pure competitor.
True. In the long run, the pure competitor is destined to only a normal profit, whereas barriers to entry mean that any economic profit realized by the monopolist can persist. In pure monopoly, there are no entrants to increase supply, drive down price, and eliminate economic profit.
300

When a firm is able to charge a price by the regulator that is just equal to their average cost.

Why is fair rate of return pricing?

400
What are the three assumptions of a monopoly?
1) Patents, economies of scale, or resource ownership secure the monopolist's status. 2) No unit of government regulates the firm. 3) The firm is a single-price monopolist; it charges the same price for all units of output.
400
Why is marginal revenue less than the price (average revenue) for every level of output except the first?
The monopolist's downward-sloping demand curve mens that it can increase sales only by charging a lower price. However, the lower price not only applies to the extra output sold but also to all prior units of output.
400
True of False. A pure monopolist's marginal-cost curve would also be it's supply curve.
False. A pure monopolis has no supply curve.
400
Perfect price discrimination results in:
1) Greater profit and greater output 2) Some consumers pay more while some pay less 3) Perfect price discrimination and pure competition are equally efficient.
500
Why are economies of scale a barrier to entry?
A declining long-run average-total-cost curve over a wide range of of output indicates economies of scales. When long-run ATC is declining only a single producer, an monopolist, can produce a particular output at minimum total cost. New firms that try to enter the industry as small scale cannot realize the cost economies of the monopolist and therefore cannot obtain the normal profits necessary for survival or growth.
500
Why does the profit-maximizing monopolist always try to avoid the inelastic region of it demand curve in favor of some price-quantity combination in the elastic region?
To get into the inelastic region, the monopolist must lower price and increase output. However, a lower price means less total revenue and increased output always mean increased total cost. Less total revenue and and higher total cost yield lower profit.
500
True or False. Because a monopolist can manipulate output and price, it "will charge the highest price possible."
False. The monopolists seeks a maximum total profit, not maximum price. Higher prices yields a smaller-than-maximum total profit. (Fallacy)
500
What is the purpose of a regulated monopoly?
To eliminate wholly or partially the tendency of monopolists to under allocate resources and to earn economic profits.