ECC1000 Chapter Notes - Chapter 4: Private Good, Externality, Marginal Utility

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PRINCIPLES OF MICROECONOMICS (ECC1000) – TOPIC SUMMARIES

TOPIC 3 – HOUSEHOLD, FIRMS, AND MARKETS

CHAPTER 11 – Monopoly

Market power

• A monopoly is an industry with a single supplier of a good or service that has no close substitutes and

in which barriers to entry prevent competition

• Barriers to entry may be legal (public franchise, license, patent, copyright), or natural (created by

economies of scale), or firm owns control of a resource

• A monopoly might be able to price discriminate when there is no resale possibility

• Where resale is possible, a firm charges one price

A single-price monopoly’s output and price decision

• A monopoly’s demand curve is the market demand curve and a single-price monopoly’s marginal

revenue is less than price

• A monopoly maximises profit by producing the output at which marginal revenue equals marginal cost

and by charging the maximum price that consumers are willing to pay for that output

Single-price monopoly and competition compared

• A single-price monopoly charges a higher price and produces a smaller quantity that a perfectly

competitive industry

• A single-price monopoly restricts output and creates a deadweight loss

• Monopoly imposes costs that equal its deadweight loss plus the cost of the resources devoted to rent

seeking

CHAPTER 15 – Competition policy

The economic theory of government

• Government exists to regulate monopoly, cope with externalities, provide public goods, control the use

of common resources, and redistribute income

• Public choice theory explains how voters, firms, politicians, and bureaucrats interact in a political

marketplace

• Consumers demand regulation that increases consumer surplus, and firms demand regulation that

increases producer surplus

• Equilibrium regulation might be in the social interest and eliminate deadweight loss or in the self-

interest of producers who capture the regulators

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Related Questions

1. Which of the following is a difference between a perfectly competitive market and a monopoly?

A. There are huge barriers to entry in a perfectly competitive market, while there are no barriers to entry in a monopoly.

B. The market demand curve faced by a perfectly competitive firm is horizontal, while the market demand curve in a monopoly is downward-sloping.

C. The sellers in a perfectly competitive market are price-makers, while a seller in a monopoly market is a price-taker.

D. The equilibrium price in a perfectly competitive market exceeds marginal revenue, while the equilibrium price in a monopoly equals marginal revenue.

2. Which of the following firms is likely to have the highest market power?

A. An oligopoly with homogeneous products

B. A monopoly

C. A monopolistic competitor

D. A perfectly competitive firm

graygrasshopper945

21)

Compared to the results in a perfectly competitive market, a monopoly does which of the following?

	It charges a higher price.
	It charges a price greater than the marginal cost.
	It produces less output.
	All of the above
	None of the above

22)

"X-inefficiency" refers to the idea that

	government restrictions on competition create a monopoly, which results in inefficiency.
	the cost of rent-seeking activity should be added to the welfare cost of monopoly.
	Generation X is less efficient due to a lack of competitive spirit.
	a lack of competitive pressure results in a monopoly not keeping its costs down to the lowest possible level.
	price discrimination results in inefficiently low cross-elasticities of demand.

23)

Firms in which of the following market structures can engage in price discrimination?

	monopoly
	oligopoly
	monopolistic competition
	All of the above
	None of the above

24)

Monopolistic competition and perfect competition are in all of the following ways except

	Barriers to entry are low in both
	There are many firms in both
	Firms in both produce the output level where MR=MC
	Nonprice competition is important in both

25)

To get rid of excess capacity from the monopolistic competition in the long run, what would have to be given up?

	Free entry and exit.
	economic rent
	resource allocative efficiency
	differentiated product
	productive efficiency

taupeant454

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

ECC1000 Chapter Notes - Chapter 4: Private Good, Externality, Marginal Utility

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