Chapter 9 Microeconomics (Exam 3)

  1. Monopoly  
    the sole seller of a good that has no close substitutes
  2. Barriers to Entry
    Factors that prevent new firms from profitably entering 
  3. The golden rule of profit maximization is 
    the same for the monopolist as it is for the perfectly competitive firm: find the rate of output for which marginal revenue equals marginal cost
  4. Deadweight Loss of Monopoly
    Some of the consumer surplus is transferred to the monopolist in the form of profits, and some is lost to society. 
  5. Under perfect competition,
    price equals marginal cost
  6. Under monopoly,
    price exceeds marginal cost
  7. If there is no price that is greater than average variable cost,
    the firm should shut down and minimize its losses by limiting them to the amount of the fixed costs.
  8. The firm should produce if 
    there is some rate of output at which all variable costs and some fixed costs are covered.
  9. Price Discrimination
    charging different prices to different customers or charging the same consumer different prices for different units of the same good. 
  10. To price discriminate, 
    a firm must face a downward-sloping demand curve, must have at least two different groups of customers with different elasticities of demand, must be able to identify members of the different groups easily, and must be able to prevent resale of its products between members of the groups.
  11. To maximize profits by price discriminating, 
    the monopolist equates marginal revenue for each group of customers with the marginal cost of supplying the good. The group with the more price inelastic demand will pay the higher price.
  12. Perfect Price Discrimination
    Charge consumers what they are willing to pay
  13. In states where the government runs liquor stores, the monopoly results from
    legal restrictions
  14. If a small town has only one grocery store, the grocer has a monopoly as a result of
     economies of scale relative to the market demand. 
  15. For a monopolist that does not perfectly price discriminate, marginal revenue is less than price because
    the firm must lower price on all units to sell additional units and the firm faces a downward-sloping demand curve.
  16. Total revenue for a monopolist is at a maximum when
     marginal revenue equals zero
  17. If a monopoly lowers price to sell additional units, its revenues increase if
    the percentage increase in units sold is greater than the percentage decrease in price. 
  18. A monopolist always produces
    on the elastic portion of the demand curve.
  19. Image Upload 1
    A monopolist will maximize profits at which rate of output in Exhibit 2?
    Q 2
  20. Image Upload 2
    In Exhibit 2, what will the profit-maximizing rate of output be if fixed costs increase?
    Q 2
  21. Image Upload 3
    In Exhibit 3, the monopolist's economic profits are
  22. Image Upload 4
    In Exhibit 3, a monopoly that perfectly price discriminates will
    produce Q 2 units.
  23. Image Upload 5
    In Exhibit 3, what could cause the ATC curve to shift down to the AVC curve without affecting theMC curve?
    elimination of fixed costs
  24. The fundamental difference between a monopoly and a firm in perfect competition is that
    a monopoly faces a downward-sloping demand curve. 
  25. In the long run, a monopolist will
    adjust the scale of the firm to maximize profits. 
  26. Other things equal, a monopoly
    does not want to raise price since it operates on the elastic portion of its demand curve.
  27. Image Upload 6 
    Consider Exhibit 4. What is the price-output combination if the industry is perfectly competitive? if it is a monopoly that does not price discriminate?
    Perfect competition: quantity = i , price = g ; Monopoly: quantity = h , price = f
  28. Image Upload 7
    The monopoly in Exhibit 4 does not price discriminate. What is its deadweight loss?
  29. Image Upload 8
    In Exhibit 4, what are the profits of a monopolist that is able to perfectly price discriminate?
  30. Image Upload 9
    In Exhibit 4, what are the deadweight losses if the firm perfectly price discriminates?
  31. Which of the following statements about monopoly is true?
     Local monopolies are more common than national monopolies.
  32. Suppose a monopoly is afraid that the U.S. Justice Department is going to intervene in the market of the monopoly because of the firm's monopoly power. Which of the following actions may it take?
    both lower price and lobby congress to block the Justice Department's action.
  33. Other things equal, the deadweight loss of monopoly is greater
    the less elastic the demand curve. 
  34. Which of the following could make actual deadweight losses different from what is indicated by a typical graphical analysis?
    all of these answers 
  35. Which of the following is not a requirement for price discrimination?
    economies of scale 
  36. A price-discriminating monopolist charges the highest price to
    the group with the least elastic demand
  37. Which type of firm is providing allocative efficiency?
    both a perfectly competitive firm and a monopoly that perfectly discriminates. 
Card Set
Chapter 9 Microeconomics (Exam 3)
Chapter 9 Microeconomics (Exam 3)