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Chapter 10

When economies of scale are important and an industry tends toward natural monopoly, splitting the industry into small, rival firms will:

Increase per-unit costs of production.

A monopolist will maximize profits by:

Producing the output where marginal revenue equals marginal cost and charging a price along the demand curve.

What is the most accurate description of a monopolist:

A firm that is the sole producer of a product for which there is no good substitutes in a market with high barriers to entry.

Assuming that firms maximize profits, how will the price and output policy of an unregulated monopolist compare with ideal market efficiency?

The output of the monopolist will be too small and its price too high.

An oligpolistic market:

1. Has a small number of rival firms, and each is large relative to the market
2.Makes the demand for each firm dependent on the actions of its rivals
3. Has high entry barriers facing firms that could otherwise enter the market.

Oligopolistic agreements on price tend to be unstable because:

Although the monopoly price maximizes the joint profits of the firms, a secret price cut by any individual firm will increase the profits of that firm; hence, collusive agreements tent to break down.

The price charged by oligopolists:

Will generally lay between the monopoly and competitive market equilibrium prices.

When firms use resources in an attempt to secure and maintain grants of market protection from the government, it is called:


The incentive for managers of a government-operated firm(for example state university) to promote internal efficiency and keep costs low will be:

Weak, because it will be difficult for voters and their representatives to monitor and eliminate the inefficiency of such firms.

When natural monopoly is present in an industry, the per-unit costs of productions will be:

Lowest when a single firm generates the entire output of the industry.

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