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01:220:102 Lecture Notes - Lecture 18: Natural Monopoly, Perfect Competition, Demand Curve

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Rutgers University
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Economic
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01:220:102
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goldband

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01:220:102 Lecture Notes - Lecture 17: Average Variable Cost, Perfect Competition, Fixed Cost

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01:220:102 Lecture Notes - Lecture 18: Natural Monopoly, Perfect Competition, Demand Curve

19

01:220:102 Lecture Notes - Lecture 19: Normal-Form Game, Imperfect Competition, Oligopoly

Document Summary

A monopoly is a type of market structure where there is only one producer with little to no product differentiation. This is different from the perfectly competitive market structure where there are many producers no differentiation. Monopolist: a firm that is the only producer of a good wit no close substitutes. Market power: the ability of firms to raise prices. With perfect competition, profits exist in short run and vanishes in the long run. Monopolies raise prices above perfectly competitive price in order to restrict outputs. Profits will not persist in the long run unless there is a barrier to entry. Barriers to entry are anything that prevents potential firms from entering the industry. Generates profit for the monopolist in the short and long run. Increasing returns to scale: monopolies are able to increase output with increasing scale by investing a lot of resources to scale. Large cost advantage to a single firm.

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Related Questions

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.

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.


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.