ECON 1B03 Lecture Notes - Lecture 29: Natural Monopoly, Demand Curve, Perfect Competition

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ECON 1B03 Full Course Notes

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Basic reason for monopoly is barriers to entry. There are 4 sources of these barriers: a single firm owns a key resource that no other firm can access/has a close substitute for. In reality, this is rare b/c firms are big and international in scope: government gives 1 firm exclusive right to produce and sell some good. Government can give a firm sole rights to sell in a particular market, like cable tv companies: an industry is a natural monopoly . A single firm can supply a good/service to an entire market at a lower cost than could. A natural monopoly arises when there are increasing returns to scale over a relevant range of output. Firm operates on downward sloping part of its average total cost curve, so it can increase output and still lower its average costs: monopoly by good management. Some firms conduct their affairs with aim of keeping out/driving out competition.

Related Questions

When the demand for a good or service limits the quantity that can be sold to an output at which the firm experiences economies of scale, the ____.

A) firm is a single-price monopoly

B) good that the industry produces has close substitutes

C) firm is a natural monopoly

D) firms are protected from competition by a legal barrier

carminegoldfish488

1) A natural monopoly exists when:

a. A few firms collude to make one large firm

b. Firms enter the industry as a result of profit incentives

c. Economies of scale provide large cost advantages to having one firm produce the industry's output

d. Firms naturally maximize regardless of market structure

2) A(n) ____ is a single firm with ___, whereas a(n) ___ implies an industry with ____ firm(s) and ____ .

a. Monopoly; barriers to entry; oligopoly; few; no barriers to entry

b. Oligopoly; no barriers to entry; monopoly; many; easy entry and exit

c. Monopoly; barriers to entry; monopolistic competition; many; easy entry and exit

d. Monopolistic competitor; barriers to entry; monopoly; one; barriers to entry

3) In monopolistic competition:

a. Each firm produces a product identical to that of every other firm in the industry

b. Firms are aware of their strategic interdependence

c. Firms earn large economic profits in the long run

d. Firms earn zero economic profits in the long run

4) A monopolistically competitive industry, such as corn snack chips, and a perfectly competitive industry, like wheat farming, are alike in that:

a. There are many firms in each industry

b. Firms in both types of industries produce similar but not identical products

c. Barriers to entry in both industries are large

d. Firms in both types of industries produce identical products

byzantiumfish483

Select the correct answer:

A (legal; natural) monopoly exists when one firm can meet the entire market demand at a lower average total cost than two or more firms could.

A monopoly that is able to sell different units of a good or service for different prices is a (natural-price; price-discriminating) monopoly.

The act of obtaining special treatment by the government to create an economic profit is called (government surplus; rent seeking).

Regulated firms have an incentive to inflate their costs under (rate of return; price cap) regulation.

The U.S. Postal Service has a (natural; legal) monopoly on first class mail delivery.

A (single-price; price discriminating) monopoly maximizes profit by producing the quantity at which marginal revenue equals marginal cost and then charging the maximum price that consumers are willing to pay for that quantity.

The key idea behind price discrimination is to convert (consumer surplus; producer surplus) into economic profit.

ECON 1B03 Lecture Notes - Lecture 29: Natural Monopoly, Demand Curve, Perfect Competition

ECON 1B03 Full Course Notes

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