ECON 2304 Lecture Notes - Lecture 21: Demand Curve, Natural Monopoly, De Beers

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sapphirehamster324

1 Feb 2017

School

University of Houston

Department

Economics

Course

ECON 2304

Professor

Tung Thanh Nguyen

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Document Summary

In this chapter, look for the answers to these questions. A monopoly is a firm that is the sole seller of a product without close substitutes. In this chapter, we study monopoly and contrast it with perfect competition. The key difference: a monopoly firm has market power, the ability to influence the market price of the product it sells. The main cause of monopolies is barriers to entry -- other firms cannot enter the market. A single firm owns a key resource (e. g. , debeers owns most of the world"s diamond mines) The governemnt gives a single firm the exclusive right to produce the good (e. g. , patents, copyright laws) Natural monopoly: a single firm can produce the entire market q at lower cost than could several firms. Atc is lower if one firm services all 1000 homes thana if 2 firms each service 500 homes. In a competitive market, the market demand curve slopes downward.

Related Questions

1. Which characteristic led to Microsoft exercising monopoly power?

A.copyright protection for the Windows operating system

B .no close substitutes

C.economies of scale

D.government franchise

2. The goal of antitrust law is to:

A. prevent monopolies and monopoly power from arising.

B.protect monopolies from the competition.

C. make sure consumers pay high prices.

D. preserve allocative inefficiencies of monopolies.

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

A. The market has just one seller.

B.There exist significant barriers to entry.

C. Substitutes for the monopolist's products are available to buyers.

D. No close substitutes exist for the monopolist's products.

4. A constantly declining long-run average cost curve is a characteristic of what type of industrial structure:

A. Monopoly

B. Natural monopoly

C. Oligopoly

D. Perfect competition

5. An industry that has large economies of scale operates most efficiently as a(n):

	A.competitive industry.
	B.monopoly
	C.regulated natural monopoly.
	D.anarchic industry.

goldcattle908

1. A perfectly competitive firm will continue producing in the short run as long as it can cover its:

A.total cost.
B.average total cost.
C.average variable cost.
D.average fixed cost.

2. A perfectly competitive firm will earn a profit and will continue producing the profit-maximizing quantity of output in the short run if price is:

A.greater than marginal cost.
B.less than marginal cost.
C.less than average variable cost.
D.greater than average total cost.

3. Monopolistic competition is an industry characterized by:

A.a product with many close substitutes.
B.a horizontal demand curve.
C.a small number of firms.
D.barriers to entry and exit.

4. If a perfectly competitive firm increases production from 10 units to 11 units, and the market price is $20 per unit, total revenue for 10 units is:

A.$10.
B.$20
C.$200.
D.$210.

5. The demand curve facing a monopolist is:

A.horizontal, the same as that facing a perfectly competitive firm.
B.downward sloping, the same as that facing a perfectly competitive firm.
C.upward sloping, the same as that facing a perfectly competitive firm.
D.downward sloping, unlike the horizontal demand curve facing a perfectly competitive firm.

6. Suppose that a monopolist increases production from 10 units to 11 units. If the market price declines from $30 per unit to $29 per unit, marginal revenue for the eleventh unit is:

A.$1.
B.$9.
C.$19.
D.$29.

7. Most electric, gas, and water companies are examples of:

A.unregulated monopolies.
B.natural monopolies.
C.restricted-input monopolies.
D.sunk-cost monopolies.

8.If a perfectly competitive firm is producing a quantity that generates P > MC, then profit:

A.is maximized.
B.can be increased by increasing the price.
C.can be increased by decreasing the price.
D.can be increased by increasing production.

1. The principle that a firm should produce up to the point where the marginal revenue (MR) from the sale of an extra unit of output is equal to the marginal cost (MC) of producing the extra unit applies: ( I put A)

to both perfectly competitive firms and monopolies

only to monopolies

only to perfectly competitive firms

only to firms that can employ discriminatory pricing strategies

2. If a monopolist or a perfectly competitive firm is producing at a break-even point, then: ( I put II, IV)
i. average revenue is equal to average variable cost
ii. average revenue is equal to the o average total cost
iii. total revenue is equal to total variable cost
iv. total revenue is equal to the total cost

iii

I and iii

ii and iv

3. What do economies of scale, the exclusive ownership of essential raw materials used in the production process, and patents have in common? (I put A)

they are all barriers to entry

they all help explain why a monopolists demand and marginal revenue curves are identical

they must all be present before a monopolist may practice price discrimination

they all help explain why a firm's short-run average total cost curve is U-shaped

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ECON 2304 Lecture Notes - Lecture 21: Demand Curve, Natural Monopoly, De Beers

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