Question 1

Why might economists prefer private ownership of monopolies over public ownership of monopolies?

Accepted Answer

The answer of Why might economists prefer private ownership of...

Question 2

One solution to the problems of marginal-cost pricing of a regulated natural monopolist is average cost pricing.In this model,the monopolist is allowed to price its production at average total cost.How does average-cost pricing differ from marginal-cost pricing? Does this solution maximize social well-being?

Accepted Answer

The answer of One solution to the problems of marginal-cost...

Question 3

A monopoly market is characterized by

Accepted Answer

A monopoly market is characterized by barriers to entry, meaning that it is difficult for new firms to enter and compete in the market. This results in a single seller who has significant control over the price and supply of the product or service offered.

Question 4

A firm that is the sole seller of a product without close substitutes is

Accepted Answer

A firm that is the sole seller of a product without close substitutes is a monopolist.

Question 5

A monopoly

Accepted Answer

A monopoly can set the price it charges for its output, but it faces a downward-sloping demand curve, meaning that as it raises the price, the quantity demanded decreases. This puts a limit on the quantity it can sell at higher prices and, therefore, it cannot earn unlimited profits.

Question 6

Most markets are not monopolies in the real world because

Accepted Answer

Most markets are not monopolies in the real world because there are reasonable substitutes for most goods. In a competitive market, if a firm tries to charge a higher price, consumers can switch to substitutes offered by other firms, which limits the market power of any single firm. This makes it difficult for a firm to maintain monopoly power in the long run.

Question 7

Which of the following are necessary characteristics of a monopoly?

Accepted Answer

The answer of Which of the following are necessary characteristics...

Question 8

The fundamental source of monopoly power is

Accepted Answer

Barriers to entry are the primary source of monopoly power. These barriers can include legal restrictions, economies of scale, control over essential resources or raw materials, and patented or proprietary technology. Without barriers to entry, it would be easier for new firms to enter the market and compete with the existing monopoly, ultimately leading to lower prices and reduced profits.

Question 9

Give some examples of the benefits and costs of antitrust laws.

Accepted Answer

The answer of Give some examples of the benefits and...

Question 10

Which of the following statements is correct?

Accepted Answer

A competitive firm is a price taker because it must accept the market price set by supply and demand. A monopolist, on the other hand, has market power and can set its own price, making it a price maker.

Question 11

A perfectly competitive market

Accepted Answer

In a perfectly competitive market, firms have no market power and must compete solely on price and quality, leading to lower prices for consumers and increased efficiency. This promotes general economic well-being. In contrast, a monopoly market is characterized by a single firm with significant market power, allowing them to set prices higher and reduce output, which can harm consumers and reduce economic well-being. Therefore, a perfectly competitive market is more likely than a monopoly market to promote general economic well-being.

Question 12

Which of the following is not a reason for the existence of a monopoly?

Accepted Answer

Diseconomies of scale refer to the increase in average cost when the size of the firm exceeds a certain point, which can make it difficult to achieve a monopoly. Therefore, diseconomies of scale are not a reason for the existence of a monopoly. Sole ownership of a key resource, patents, and copyrights can all give a firm exclusive control over a product or service, allowing it to become a monopoly.

Question 13

Suppose most people regard emeralds,rubies,and sapphires as close substitutes for diamonds.Then DeBeers,a large diamond company,has

Accepted Answer

If emeralds, rubies, and sapphires are seen as close substitutes for diamonds, then DeBeers has less market power than it would otherwise have. This is because consumers have more options to choose from and can turn to other types of gemstones if the price of diamonds is too high. Therefore, DeBeers cannot exercise as much control over the market as it would if diamonds were the only desirable gemstone.

Question 14

One difference between a perfectly competitive firm and a monopoly is that a perfectly competitive firm produces where

Accepted Answer

In a perfectly competitive market, firms are price takers and produce where marginal cost equals market price. On the other hand, a monopoly firm is a price maker and produces where marginal cost equals marginal revenue, which is less than the market price. Thus, a monopolist produces at a lower output level and at a higher price than a perfectly competitive firm. Therefore, the correct answer is that a perfectly competitive firm produces where marginal cost equals price, while a monopolist produces where price exceeds marginal cost.

Question 15

Which of the following is not a characteristic of a monopoly?

Accepted Answer

A monopoly is characterized by a single seller, barriers to entry, and a product without close substitutes. However, there is no mention of one buyer being a characteristic of a monopoly.

Question 16

Because monopoly firms do not have to compete with other firms,the outcome in a market with a monopoly is often

Accepted Answer

Monopoly firms have the ability to restrict output and charge higher prices, leading to a market outcome that is not in the best interest of society and fails to maximize total economic well-being. This leads to inefficiency in the market, making all three options A, B, and C correct.

Question 17

Which of the following would be most likely to have monopoly power?

Accepted Answer

A local cable TV provider is most likely to have monopoly power as they are often the sole provider of cable services within a specific geographic area. Long-distance telephone service providers often face competition from other providers, large department stores may face competition from other retailers, and gas stations typically face competition from other gas stations in the area.

Question 18

The simplest way for a monopoly to arise is for a single firm to

Accepted Answer

When a firm owns a key resource, it can prevent competitors from entering the market by controlling access to that resource. This can lead to a monopoly situation.

Question 19

A benefit of a monopoly is

Accepted Answer

A benefit of a monopoly is that it can lead to greater creativity by authors who can copyright their novels, as they have exclusive rights to their work and can earn more profits without competition. However, this benefit may not extend to all industries or products, and in general, monopolies tend to have negative effects on consumers and the overall market.

Question 20

In many countries,the government chooses to "internalize" the monopoly by owning monopoly providers of goods and services.(In some cases these firms are "nationalized," and the government actually buys or confiscates firms that operate in monopoly markets).What would be the advantages and disadvantages of such an approach to ensure that the "best interest of society" is promoted in these markets? Explain your answer.

Accepted Answer

The answer of In many countries,the government chooses to "internalize"...

Quiz 15: Monopoly