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ECON 2113 Chapter 15

Terms in this set (28)

A competitive firm is a price maker and a monopoly is a price taker.
False
A monopoly's marginal cost will be less than its average fixed cost.
False
A monopoly has the ability to set the price of its product at whatever level it desires.
True
Examples of barriers to entry include (i) A key resource is owned by a single firm, (ii) The costs of production make a single producer more efficient than a large number of producers, or (iii) The government has given the existing monopoly the exclusive right to produce the good.
True
o define a monopoly, we cite the following characteristics: (i) and (ii). (i) The firm is the sole seller of its
product.(ii) The firm's product does not have
close substitutes.(iii) The firm generates a large
economic profit.(iv) The firm is located in a small
geographic market.
True
A natural monopoly occurs when the product is sold in its natural state (such as water or diamonds).
False
The defining characteristic of a natural monopoly is constant marginal cost over the relevant range of output.
False
Natural monopolies differ from other forms of monopoly because they are not subject to barriers to entry.
False
Patent and copyright laws are major sources of natural monopolies.
False
Bill owns the only grocery store in a small community that lies 200 miles from the nearest city, this represents a monopoly situation.
True
A government-created monopoly arises when government spending in a certain industry gives rise to monopoly power.
False
Allowing an inventor to have the exclusive rights to market her new invention will lead to (i) (ii) and (iii). (i) a product that is priced higher
than it would be without the exclusive rights.
(ii) desirable behavior in the sense that inventors are encouraged to invent.
(iii) higher profits for the inventor.
True
The costs of production make a single firm more efficient than a large number of firms, this is a primary source of barriers to entry.
True
The key difference between a competitive firm and a monopoly firm is the ability to select the level of competition in the market.
False
The market demand curve for a monopolist is typically unitary elastic at the point of profit maximization.
False
When a firm operates under conditions of monopoly, its price is not constrained.
False
In order to sell more of its product, a monopolist must sell to the government
False
Economists assume that monopolists behave as cost minimizers.
False
A monopolist's average revenue is always equal to marginal revenue
false
If a profit-maximizing monopolist faces a downward-sloping market demand curve, its average revenue is less than the price of the product.
False
A profit-maximizing monopolist will produce the level of output at which average revenue is equal to average total cost.
False
For a profit-maximizing monopolist, P > MR = MC.
True
When a monopolist increases the amount of output that it produces and sells, its average revenue increases and its marginal revenue increases.
False
Controlling the price of its goods is an impossible feat for a monopolist to accomplish.
False
Marginal revenue for a monopolist is computed as average revenue divided by quantity sold.
False
If the monopoly firm wants to maximize its profit, it should operate at a level of output equal to Q1.
False
Profit will be maximized by charging a price equal to P0.
False
For a monopolist, profit is determined by Profit = Total Revenue - Total Cost
True
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