ECON 102 Chapter Notes - Chapter 15: Monopoly Profit, Natural Monopoly, Monody

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peachkoala371

23 Apr 2019

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Monopoly - firm that is the sole seller of a product without any close substitutes. Fundamental cause of monody is barriers to entry. Barriers to entry - monopoly remains the only seller in its market because other firms cannot enter the market and compete with it. Monopoly resources - key resource required for production is owed by a single firm. Government regulation - government gives a single firm the exclusive right to produce some good or service. Production process - single firm can produce output at a lower cost than can a larger number of firms. Simplest way for a monopoly to arise is for a single firm to own a key resource. Monopolist has much greater market power than any single firm in a competitive market. Although exclusive ownership of a key resource is a potential cause of monopoly, in practice monopolies rarely arise for this reason. Economies are large, and resources are owned by many people.

Related Questions

A natural monopoly is defined as an industry in which:

a) one firm can produce the entire industry output at a lower average cost than a larger number of firms could.

b) a single firm controls crucial inputs to the production process.

c) a single seller exists as a result of patent protection.

d) a single firm exists because the government owns and operates the monopoly.

salmongnu766

What might create a monopoly?

	a.	a key resource is owned by a single firm.
	b.	the government gives a single firm the exclusive right to produce a good or service.
	c.	a single firm can produce output at a lower cost than a larger number of producers.
	d.	all of the above

raspberryrabbit318

1.As long as price is sufficient to cover __________, the firm isbetter off by operating rather than by shutting down in the shortrun.
Answer
marginal cost
average fixed cost
average variable cost
marginal revenue

2.The owner of Tie-Dyed T-shirts, a perfectly competitive firm, hashired you to give him some economic advise. He has told you thatthe market price for his shirts is $20 and that he is currentlyproducing 200 shirts at an AVC of $15 in the short run and an AC of$25. What would you recommend to him?
Answer
To continue producing in the short run, as his loss from productionis less than his fixed costs, but to exit the industry in the longrun if there are no changes in economic conditions.
To shut down in the short run, as he is incurring a loss and toleave the industry in the long run, if there are no changes ineconomic conditions.
To continue to produce in the short run, even though he is earninga loss, and to expand in the future with the hope of increasingmarket share and total revenue.
You tell him you cannot make any recommendations until you knowwhat his fixed costs are.

3.Which type of barrier to entry allows the electric company tomaintain a monopoly over the production of electricity?
Answer
a patent
economies of scale
diseconomies of scale
ownership of a scarce factor of production.

4. Why can a monopolist continue to make positive profits even inthe long-run while a perfectly competitive firm can make only zeroeconomic profits in the long-run?
Answer
Because a monopoly only has one firm while perfect competition hasmany.
Because monopoly has barriers to entry and perfect competition hasfree entry.
Because perfect competition has barriers to entry and monopoly hasfree entry.
Because in perfect competition everyone produces the same productand because in monopoly there are no close substitutes.

5.What is the difference between diminishing returns anddiseconomies of scale?
Answer
Diminishing returns is in the short run while diseconomies of scaleis in the long run.
Diminishing returns is in the long run while diseconomies of scaleis in the short run.
They are both the same thing.
There is no such thing as diseconomies of scale.

6. What does the LAC look like for a firm with constant returns toscale?
Answer
It slopes downwards.
It slopes upwards.
It is a horizontal straight line.
It is a vertical straight line.

7.Natural monopoly occurs when there are:
Answer
large economies of scale.
firms joining together to limit output and raise prices.
different prices for different consumers or groups ofconsumers.
patents.

8.Suppose we know that a monopolist is maximizing its profits.Which of the following must be true? The monopolist has
Answer
maximized its total revenue.
set price equal to its average cost.
maximized the difference between marginal revenue and marginalcost.
set marginal revenue equal to marginal cost.

ochresalmon590

ECON 102 Chapter Notes - Chapter 15: Monopoly Profit, Natural Monopoly, Monody

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