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Exam 8: Monopoly Markets

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Question 51

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The ability of a firm to charge a price greater than marginal cost is called

A) monopoly power.
B) price-making power.
C) cost-plus pricing.
D) market power.

E) B) and D)
F) B) and C)

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Question 52

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A local electricity-generating company has a monopoly that is protected by an entry barrier that takes the form of

A) control of a key raw material.
B) network externalities.
C) economies of scale.
D) perfectly inelastic demand curve.

E) B) and C)
F) A) and B)

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Question 53

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To what does market power refer?

Figure 8.10 -Refer to Figure 8.10.The area that represents consumer surplus under a monopoly is -.

Figure 8.1 -Refer to Figure 8.1.Which of the following statements about the firm depicted in the diagram is true?

How do the price and quantity of a monopoly compare to that of a perfectly competitive industry? __________________________________________________________________________________________________________________________________________________________________________________________

Figure 8.7 -Refer to Figure 8.7.Use the figure above to answer the following questions. a.What is the profit-maximising quantity and what price will the monopolist charge? b.What is the total revenue at the profit-maximising output level? c.What is the total cost at the profit-maximising output level? d.What is the profit? e.What is the profit per unit (average profit)at the profit-maximising output level? f.If this industry was organised as a perfectly competitive industry,what would be the profit-maximising price and quantity? __________________________________________________________________________________________________________________________________________________________________________________________

Economic efficiency in a free market occurs when

For a natural monopoly,the marginal cost of producing an additional unit of its product is relatively small.

Why do governments grant patents?

To be a natural monopoly,a firm must

A snack shop inside a hotel in a busy city has a monopoly on food sales if it is the only food vendor in the hotel that is open 24 hours a day.

When the government wants to give an exclusive right to one firm to produce a product,it

Figure 8.4 Figure 8.4 shows the demand and cost curves for a monopolist. -Refer to Figure 8.4.The amount of the monopoly's total revenue is -.

For which of the following firms is patent protection of vital importance?

a.What is the defining characteristic of a natural monopoly? b.Should the government break up a natural monopoly into two or more firms to make the industry more competitive? c.Suppose the government wants to ensure that some of the benefits of declining average total cost are passed on to consumers.To achieve this goal,it requires that the natural monopoly set its price equal to marginal cost.Is this a feasible goal? Explain. d.What is an alternative to marginal cost pricing that ensures that consumers reap some of the benefits of declining average total cost? __________________________________________________________________________________________________________________________________________________________________________________________

Figure 8.10 -Refer to Figure 8.10.What is the area that represents the deadweight loss?

Network externalities refer to the situation where the usefulness of a product increases with the number of consumers who use it.

To maximise profit,a monopolist will produce and sell a quantity such that for the last unit sold,marginal revenue equals marginal cost,and will charge a price given by the demand curve at that output level.

What is the relationship between marginal revenue and average revenue for a monopolist and is it the same for a perfect competitor? __________________________________________________________________________________________________________________________________________________________________________________________