Deck 15: Monopoly

Question 1

For a monopoly, marginal revenue is often greater than the price it charges for its good.

Answer 1

False

Question 2

A natural monopoly has economies of scale for most if not all of its range of output.

Answer 2

True

Question 3

A patent gives a single person or firm the exclusive right to sell some good or service forever.

Answer 3

False

Question 4

Declining average total cost with increased production is one of the defining characteristics of a natural monopoly.

Question 5

If a product can be produced by a natural monopoly, society will benefit in the form of lower prices if the monopolist is broken up into several smaller firms.

Question 6

The fundamental cause of monopolies is barriers to entry.

Question 7

The De Beers Diamond company is not worried about differentiating its product from all other gemstones.

Question 8

If the ABC company owns the exclusive rights to mine land in Afghanistan for Lapis Lazuli, a rare stone used in jewelry which is found only in Afghanistan, the company benefits from a barrier to entry.

Question 9

Even with market power, monopolists cannot achieve any level of profit they desire because they will sell lower quantities at higher prices.

Question 10

When a monopolist increases the quantity that it sells, all else equal, total revenue increases, which is called the output effect.

Question 11

Average revenue for a monopoly is the total revenue divided by the quantity produced.

Question 12

If the government deems a newly-invented drug to be truly original, the pharmaceutical company is given the exclusive right to manufacture and sell the drug for 50 years.

Question 13

Copyrights and patents are examples of barriers to entry that give firms monopoly pricing powers.

Question 14

Monopolists can achieve any level of profit they desire because they have unlimited market power.

Question 15

The three main sources of barriers to entry are monopoly resources, government regulation, and the firm's production process.

Question 16

When a monopolist increases the quantity that it sells, price decreases, which, all else equal, decreases total revenue; this is called the price effect.

Question 17

The De Beers Diamond company advertises heavily to promote the sale of all diamonds, not just its own. This is evidence that it has a monopoly position to some degree.

Question 18

One characteristic of a monopoly market is that the product is virtually identical to products produced by competing firms.

Question 19

The amount of power that a monopoly has depends on whether there are close substitutes for its product.

Question 20

A patent gives a single person or firm the exclusive right to sell some good or service for a specific period of time.

Question 21

The socially efficient quantity is found where the demand curve intersects the marginal cost curve.

Question 22

The deadweight loss for a monopolist equals one-half of its profits for any given level of output.

Question 23

The profit that a monopolist earns represents a loss to society that is measured through deadweight loss.

Question 24

Like competitive firms, monopolies choose to produce a quantity in which marginal revenue equals marginal cost.

Question 25

A monopolist produces where P > MC = MR.

Question 26

In a monopoly market, the socially efficient quantity of output is typically higher than the profit-maximizing quantity of output for the monopolist.

Question 27

A monopolist produces an output level where marginal revenue equals marginal cost and charges a price where marginal cost equals average total cost.

Question 28

A monopolist maximizes profit by producing an output level where marginal cost equals price.

Question 29

During the life of a drug patent, the monopoly pharmaceutical firm maximizes profit by producing the quantity at which marginal revenue equals marginal cost.

Question 30

Like competitive firms, monopolies charge a price equal to marginal cost.

Question 31

A monopolist's supply curve is vertical.

Question 32

A monopolist does not have a supply curve because the firm's decision about how much to supply is impossible to separate from the demand curve it faces.

Question 33

A monopolist produces where P = MC = MR.

Question 34

Deadweight loss measures the loss in society's welfare that occurs because a monopolist can earn profits without the concern of new firms entering its industry.

Question 35

Deadweight loss measures the loss in society's welfare that occurs because a monopolist does not produce the socially efficient level of output.

Question 36

A monopolist's supply curve is horizontal.

Question 37

At the profit-maximizing quantity of output for a monopolist, average revenue, marginal revenue, and price are all equal.

Question 38

A monopoly creates a deadweight loss to society because it produces less output than the socially efficient level.

Question 39

A monopoly creates a deadweight loss to society because it earns both short-run and long-run positive economic profits.

Question 40

A monopolist's profit is equal to (Price - Marginal Cost) × Quantity.

Question 41

Some companies merge in order to lower costs through efficient joint production.

Question 42

Goods that do not have close substitutes have downward-sloping demand curves.

Question 43

A common solution to monopoly in European countries is public ownership.

Question 44

Price discrimination is prohibited by antitrust laws.

Question 45

Suppose a profit-maximizing monopolist faces a constant marginal cost of $10, produces an output level of 100 units, and charges a price of $50. The socially efficient level of output is 200 units. Assume that the demand curve and marginal revenue curve are the typical downward-sloping straight lines. The monopoly deadweight loss equals $4,000.

Question 46

In order for a firm to maximize profits through price discrimination, the firm must have some market power and be able to prevent arbitrage.

Question 47

A monopolist that can practice perfect price discrimination will not impose a deadweight loss on society.

Question 48

By selling hardcover books to die-hard fans and paperback books to less enthusiastic readers, the publisher is able to price discriminate and raise its profits.

Question 49

A monopolist earns higher profits by charging one price than by practicing price discrimination.

Question 50

Suppose a profit-maximizing monopolist faces a constant marginal cost of $20, produces an output level of 100 units, and charges a price of $50. The socially efficient level of output is 200 units. Assume that the demand curve and marginal revenue curve are the typical downward-sloping straight lines. The monopoly deadweight loss equals $1,500.

Question 51

Movie theatres charge different prices to different groups of people based on the differing marginal costs that exist from group to group.

Question 52

If the government regulates the price a natural monopolist can charge to be equal to the firm's marginal cost, the government will likely need to subsidize the firm.

Question 53

Antitrust laws give the Justice Department the authority to challenge potential mergers between companies in an effort to safeguard society from monopoly power.

Question 54

Airlines often separate their customers into business travelers and personal travelers by giving a discount to those travelers who stay over a Saturday night.

Question 55

Suppose a profit-maximizing monopolist faces a constant marginal cost of $10, produces an output level of 100 units, and charges a price of $50. The socially efficient level of output is 200 units. Assume that the demand curve and marginal revenue curve are the typical downward-sloping straight lines. The monopoly deadweight loss equals $2,000.

Question 56

By offering lower prices to customers who buy a large quantity, a monopoly is price discriminating.

Question 57

Price discrimination can increase both the monopolist's profits and society's welfare.

Question 58

The proper level of government intervention is unclear when dealing with a monopoly.

Question 59

If the government regulates the price a natural monopolist can charge to be equal to the firm's average total cost, the firm has no incentive to reduce costs.

Question 60

University financial aid can be viewed as a type of price discrimination.

Question 61

A natural monopoly will always operate in the region of the long run average total cost curve where the cost per unit is constant.
​
​

Question 62

State two examples of government-created monopolies.

Question 63

The best solution to the problem of welfare loss from monopoly is public ownership.

Question 64

Barriers to entry only exist for monopoly markets.

Question 65

Government intervention always reduces monopoly deadweight loss.

Question 66

​The best option to control the behavior of a natural monopoly is to use public ownership of the monopoly.

Question 67

Comparing firms in perfectly competitive markets to monopoly firms, which charges higher prices?

Question 68

A key for a monopoly that wants to practice price discrimination is to be able to control the resale of its product.
​

Question 69

Comparing firms in perfectly competitive markets to monopoly firms, which produces more output?

Question 70

The government may choose to do nothing to reduce monopoly inefficiency because the "fix" may be worse than the problem.

Question 71

​As long as as a monopolist is able to control the resale of its product, then it can successfully practice price discrimination.

Question 72

Monopolists can practice price discrimination in all monopoly markets.​

Question 73

Comparing firms in perfectly competitive markets to monopoly firms, which charges a price equal to marginal cost?

Question 74

Government intervention is always preferable to doing nothing when reducing the social inefficiencies of monopoly.

Question 75

A monopolist is able to choose whatever price that it wishes and is only constrained by its greed.
​

Question 76

The supply curve for a monopolist, in the short run, is defined in the same way as that for a competitive firm: it is the portion of the marginal cost curve above average variable cost.

Question 77

Firms with substantial monopoly power are quite common because many goods are unique.

Question 78

​Since monopolists that practice price discrimination generally increase market output, compared to a monopoly that charges a single price, practicing price discrimination generally leads to a smaller deadweight loss.

Question 79

What are the three main sources of barriers to entry for monopolies?

Question 80

It is difficult in a natural monopoly market for the firm to achieve both efficiency and zero economic profit simultaneously, even with regulation.
​