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Econ 201 Chapter 12: Monopoly

Terms in this set (40)

The cost that cannot be recovered for a considerable period of time is known as a(n)

incremental cost.

sunk cost.

opportunity cost.

variable cost.
sunk cost.
A monopolist's demand curve

is a vertical line.

is a horizontal line.

coincides with the market demand curve.

slopes upward.
coincides with the market demand curve.
Large-scale input purchases permit a monopolist to take quantity discounts, which leads to a(n)

downward shift in the monopolist's cost curves.

upward shift in the monopolist's demand curve.

upward shift in the monopolist's cost curves.

downward shift in the monopolist's demand curve.
downward shift in the monopolist's cost curves.
Identify the statement that is true of price discrimination.

It helps the discriminating firm to boost the productivity of its workers.

It helps the discriminating firm to earn comparatively higher revenues.

It results in higher consumer surplus in the market.

It helps the discriminating firm to hire workers at a comparatively lower cost.
It helps the discriminating firm to earn comparatively higher revenues.
_____ help(s) preserve a monopoly market.

An uninterrupted supply of substitute products

A decrease in advertising expenditure

Measures to keep potential rivals out of the market

Grants from the government
Measures to keep potential rivals out of the market
A monopolist always produces an output level corresponding to a point where

AR > AC.

P = MR = AR.

MC = MR.

MC > MR.
MC = MR.
_____ is not a barrier to entry of new firms into an industry.

A firm's control over a scarce resource in an industry

Technological superiority of a major firm in an industry

A high capital to labor ratio of a large firm in an industry

Economies of scale enjoyed by a firm in an industry
A high capital to labor ratio of a large firm in an industry
In the long run, when compared to a perfectly competitive firm, a profit-maximizing monopolist

invests fewer resources in research and development than a perfectly competitive industry.

produces the same amount as a perfectly competitive industry.

receives a higher price for its output than a perfectly competitive firm.

produces a larger output than a competitive firm.
receives a higher price for its output than a perfectly competitive firm.
_____ refers to the sale of a given product at different prices to different customers of a firm, when there are no differences in the costs of supplying to these customers.

Lobbying

Price discrimination

Skimming

Market penetration
Price discrimination
The _____ curve for a monopolist always lies below the demand curve.

average revenue

marginal revenue

average cost

marginal cost
marginal revenue
A monopoly will reduce the price of its product to sell more in the market, if _____.

marginal revenue is equal to average revenue

marginal revenue is greater than marginal cost

marginal revenue is equal to marginal cost

marginal revenue is greater than average revenue
marginal revenue is greater than marginal cost
Which of the following is true of a monopolist?

A monopolist cannot increase the production of its product without altering the price of the product.

A monopolist can sell more without changing the price of its product.

A monopolist produces an output level corresponding to the point where marginal revenue is less than marginal cost.

A monopolist faces a demand curve that is parallel to the vertical axis.
A monopolist cannot increase the production of its product without altering the price of the product.
A profit-maximizing monopolist

produces in the inelastic region of the market demand curve.

produces less output than a perfectly competitive industry.

engages in less research and development activity than a perfectly competitive firm.

produces the output level where P = MC.
produces less output than a perfectly competitive industry.
Suppose that, in a natural monopoly market, a second firm enters and begins operation. We can predict that as a result of this

total output in the market will rise.

economic profits will increase.

customers will be happier.

average costs per unit will increase.
average costs per unit will increase.
Which of the following will lead to an increase in output in a monopoly?

Higher taxes

Higher prices

Price discrimination

Higher input costs
Price discrimination
In the long run, in a monopoly market, it is the case that

there are no barriers to entry.

price is above marginal cost.

other firms will enter and monopoly profits will fall.

monopolies, as well as perfectly competitive markets, earn economic profits.
price is above marginal cost.
In natural monopoly markets, governments in the United States

enforce strict rules to foster substantial competition in the market.

regulate the firms to control monopoly behavior.

allow firms to operate unimpeded.

encourage entry by other firms into these markets.
regulate the firms to control monopoly behavior.
In the long run, in a monopoly market,

the level of output sold is larger than that in a perfectly competitive market.

the consumer surplus is smaller than that in a perfectly competitive market.

the producer surplus is smaller than that in a perfectly competitive market.

the price charged for the product is lower than the price charged in a perfectly competitive market.
the consumer surplus is smaller than that in a perfectly competitive market.
There _____ for the product supplied by a monopoly firm.

are many close substitutes

are no close substitutes

are no costs involved

is no demand
are no close substitutes
Which of the following is a criterion used to decide whether or not a firm is a natural monopoly?

The size of the firm relative to the size of the market for its product

The revenue generated by a firm

The number of employees in a firm

The type of product a firm produces
The size of the firm relative to the size of the market for its product
Identify the statement that defines a "pure monopoly."

An industry in which there is only one supplier of a product for which there are no close substitutes is known as a pure monopoly.

An industry in which there are many small firms that sell purely homogeneous products is known as a pure monopoly.

An industry that is characterized by one large firm and a large number of small firms is called a pure monopoly.

An industry in which there are two firms that control the market for a product is known as a pure monopoly.
An industry in which there is only one supplier of a product for which there are no close substitutes is known as a pure monopoly.
A monopolist

produces an output corresponding to a point where marginal cost exceeds marginal revenue.

is a price taker.

produces homogeneous products.

is a price maker.
is a price maker.
Airlines that offer heavily discounted fares to passengers who travel late at night or very early in the morning is an example of

price discrimination.

cartel agreements.

vacation airfares.

market pricing.
price discrimination.
A monopolist earns profit when _____.

an increase in the price of the product leads to an increase in the demand for the product.

its marginal revenue curve touches the horizontal axis.

its demand curve lies below its marginal revenue curve, at the equilibrium level of output.

its demand curve lies above its average total cost curve, at the equilibrium level of output.
its demand curve lies above its average total cost curve, at the equilibrium level of output.
If a natural monopoly is broken into two smaller firms, it is likely to cause a(n)

fall in the total output in the industry.

fall in the price of the product.

increase in government revenue.

increase in the cost of production.
increase in the cost of production.
In the long run, monopoly as a market structure

faces a horizontal demand curve.

operates at minimum long-run average cost.

earns zero economic profit.

earns persistent economic profit.
earns persistent economic profit.
What is true for both a monopolist and a perfect competitor?

Both face downward-sloping demand curve.

Both minimize average total cost in the long run.

Both maximize profits by producing where MR = MC.

Both have prices that are greater than marginal revenue.
Both maximize profits by producing where MR = MC.
The demand curve of a monopolist is also its _____.

average cost curve

average revenue curve

marginal cost curve

marginal revenue curve
average revenue curve
_____ is a practice by firms wherein they charge a more profitable consumer somewhat lower prices in order to lure them away from the firm that is charging higher prices.

Skimming

Price discrimination

Featherbedding

Lobbying
Skimming
A _____ is a privilege granted to an inventor by a state, which prohibits anyone else from producing or using that invention without the permission of the inventor, for a specified period of time.

patent

quota

tariff

trademark
patent
Price discrimination

makes a firm to incur losses.

causes firms to operate with high costs.

is easier for a monopolist than for a firm in a competitive market.

always leads to reduction in output.
is easier for a monopolist than for a firm in a competitive market.
An increase in the fixed cost of production will cause

the revenue earned by a monopolist to increase.

the price of the product produced by a monopoly to decrease.

no change in the output of a monopolist.

the total output in a monopoly market to increase.
no change in the output of a monopolist.
At its current level of output, a monopoly firm has an MR of $20, an MC of $15, and at that output, economic profits are currently zero. Given that the firm faces a downward-sloping demand curve, and the marginal cost curve is increasing, what should the monopoly do?

The firm should shut down since economic profit is zero.

The firm should increase its output to increase profits.

The firm should do nothing, since it is currently in a profit-maximizing position.

The firm should increase its price to raise its profits.
The firm should increase its output to increase profits.
Unlike a perfectly competitive firm, a monopolist

faces a horizontal demand curve.

produces a level of output that is lower than the industry output.

charges a price that is lower than that charged by a perfectly competitive firm.

produces a level of output that is smaller than that produced by a perfectly competitive firm.
produces a level of output that is smaller than that produced by a perfectly competitive firm.
When firms offer discounts to college students, they do this because

it a gesture of good will, since college students typically have low-income levels.

it can increase their profits by practicing price discrimination.

it benefits the firms, since college students often have high-income levels.

it smooths demand by using peak/off-peak pricing.
it can increase their profits by practicing price discrimination.
The ability to control a scarce resource or input is one potential advantage for firms in

monopoly.

oligopoly.

perfect competition.

monopolistic competition.
monopoly.
The demand curve facing a monopolist is

downward-sloping.

perfectly inelastic.

perfectly elastic.

identical the demand curve for a perfectly competitive firm.
downward-sloping.
Golden Evan, a firm manufacturing good X is headquartered in Baltonia. It decides to expand its business in Genovia market. The Genovian market for good X is not an example of a pure monopoly if

there is a need for a permit from the government to operate in the market.

it permits the sale of differentiated products only.

a large firm in Genovia makes it financially impossible for Golden Evan to sustain its operations in Genovia.

Golden Evan can easily enter into the market.
Golden Evan can easily enter into the market.
A(n) _____ is an industry in which advantages of large-scale production make it possible for a single firm to produce the entire market output at much lower costs.

oligopoly

monopsony

duopoly

natural monopoly
natural monopoly
Suppose "a" and "b" are two different consumer groups with different elasticities of demand for the products of a firm. In this situation, if the firm engages in price discrimination, it will maximize profits where

AC = MC.

MR = MC.

P > AC.

MRa = MRb = MC.
MRa = MRb = MC.
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