ECON 2001.01 Lecture Notes - Lecture 24: Perfect Competition, Allocative Efficiency, Demand Curve

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reddolphin448

9 Nov 2018

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Ohio State University

Department

Economics

Course

ECON 2001.01

Professor

Jeffrey Buser

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ECON 2001.01 Lecture 23: Monopoly

ECON 2001.01 Lecture Notes - Lecture 24: Perfect Competition, Allocative Efficiency, Demand Curve

ECON 2001.01 Lecture Notes - Lecture 25: Monopolistic Competition, Demand Curve

Document Summary

Can"t be higher than the demand curve. Competition vs monopoly: a comparison of monopoly to perfect competition will be made on two issues. Allocative efficiency: technical efficiency means that the firm is producing the good at the lowest possible cost. The firm is operating at the lowest part of the average total cost curve. It was the natural outcome for a perfectly competitive firm. Since monopolist faces no other competition, it does not have to be efficient. Recall that perfectly competitive markets set price and output where the supply and demand curves intersect, which maximizes the consumer and producer surplus. Monopolist charges a price and outut based on the point where. Monopoly will charge more and produce less than a similar industry under perfect competition. Society as a whole is worse off because of the presence of a monopoly in the market.

Related Questions

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?

A.Because a monopoly only has one firm while perfect competitionhas many.

B.Because monopoly has barriers to entry and perfect competitionhas free entry.

C.Because perfect competition has barriers to entry and monopolyhas free entry.

D.Because in perfect competition everyone produces the same productand because in monopoly there are no close substitutes

2. Because of a patent, Alcoa is the only manufacturer of soda canswith a stay-put tab. Alcoa can earn a profit on the sale of sodacans with stay-put tabs

A. in the short run but not in the long run because new firms canenter the industry in the long run.

B. only in the long run because government regulations preventmonopolists from earning profits in the short run.

C. in the long run but not the short run because the monopolistwill face competition in the short run.

D. not only in the short run but also in the long run because entryinto the industry by new firms is blocked until the patentexpires.

yellowprairie-dog536

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

A monopoly is an inefficient way to produce a product because

a) it can earn both short-run and long-run profits.

b) it faces a downward-sloping demand curve.

c) the cost to the monopolist of producing one more unit exceeds the value of that unit to potential buyers.

d) it produces a smaller level of output than would be produced in a competitive market.

burgundyferret557

ECON 2001.01 Lecture Notes - Lecture 24: Perfect Competition, Allocative Efficiency, Demand Curve

ECON 2001.01 Lecture 23: Monopoly

ECON 2001.01 Lecture Notes - Lecture 24: Perfect Competition, Allocative Efficiency, Demand Curve

ECON 2001.01 Lecture Notes - Lecture 25: Monopolistic Competition, Demand Curve

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