ECN 104 Chapter Notes - Chapter 15: Natural Monopoly, Demand Curve, Market Power

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byzantiumcockroach358

20 Apr 2017

School

Ryerson University

Department

Economics

Course

ECN 104

Professor

Tsogbadral Galaabaatar

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Monopoly a firm that is the sole seller of a product without close substitutes. Monopoly has market power, the ability to influence the market price of the product it sell, a competitive firm has no market power. In a competitive market, the market demand curve slopes downward, but the demand curve for a(cid:374)y i(cid:374)di(cid:448)idual fir(cid:373)"s produ(cid:272)t is horizo(cid:374)tal at the (cid:373)arket pri(cid:272)e. the fir(cid:373) (cid:272)a(cid:374) i(cid:374)(cid:272)rease q without lowering p, so mr = p. Monopolist is the only seller so it faces the market demand curve. To sell a larger q, the firm must reduce p, so mr p. Increasing q as two effects on revenue: output effect higher output raises revenue, price effect lower price reduces revenue. To sell a larger q, the monopolist must reduce the price on all units it sells so mr < p. Mr could even be negative if the price effect exceeds the output effect.

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

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32. Which of the following is not a difference between monopolies and perfectly competitive markets?

A. Monopolies face downward sloping demand curves while perfectly competitive firms face horizontal demand curves.

B. Monopolies charge a price higher than marginal cost while perfectly competitive firms charge a price equal to marginal cost.

C. Monopolies can earn profits in the long run while perfectly competitive firms break even.

D. Monopolies choose to produce the quantity at which marginal revenue equals marginal cost while perfectly competitive firms do not.

40. Which of the following statements is not correct?

A. Both monopolies and monopolistically competitive firms can earn economic profits in the long run.

B. Both monopolistically competitive and perfectly competitive firms can earn economic profits in the short run.

C. Only competitive firms produce the welfare-maximizing level of output.

D. Firms in perfect competition, monopolistic competition, and monopoly maximize profits by producing where marginal revenue equals marginal cost.

43. A monopolistically competitive firm is currently producing 20 units of output. At this level of output the firm is charging a price equal to $20, has marginal revenue equal to $12, has marginal cost equal to $12, and has average total cost equal to $18. From this information we can infer that

A. the profits of the firm are negative.

B. firms are likely to leave this market in the long run.

C. the firm is currently maximizing its profit.

D. All of the above are correct.

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.

ECN 104 Chapter Notes - Chapter 15: Natural Monopoly, Demand Curve, Market Power

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