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Estimates of the deadweight loss of monopoly may be underestimated because

a. some firms have monopoly power that economists do not recognize.

b. monopolists actually produce on the inelastic portion of their demand curves.

c. the estimates exclude costs the firm incurs in acquiring or maintaining its monopoly.

d. all of the above.

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Related questions

Question 1

The amount of profit that can be achieved using uniform pricing is __________ the profit that can be achieved from price discrimination because of _______.

Select one:

a. greater than; the cost of trying to determine every single consumer's individual demand (willingness to pay) is prohibitively expensive.

b. less than; uniform pricing is more costly so the ATC and AVC curves are higher than they are under price discrimination.

c. equal to; the TR and TC curves are equivalent under either pricing scheme, so there is no profit advantage to either scheme.

d. less than; total demand includes people who would be willing to pay more than, as well as less than, the uniform market price.

Question 2

A firm selling in two markets is practicing price discrimination:

Select one:

a. when it refuses to sell the good to some group of consumers.

b. anytime it charges different consumers different prices.

c. when it charges the same price to different consumers as long as they differ in their demand for the good.

d. when it is charging different consumers, different prices, and the price difference is not based upon cost differences.

Question 3

To successfully practice price discrimination:

Select one:

a. consumers in two separate markets must have identical demand.

b. the firm must possess market power.

c. it must be easy for consumers in one market to sell to consumers in the other market.

d. the firm must be a pure monopoly.

Question 4

If it could practice first-degree price discrimination, a firm with market power could earn:

Select one:

a. its typical monopoly profit as well as the area which, under uniform pricing, would represent the deadweight loss associated with market power.

b. an area half the size of its monopoly power under uniform pricing.

c. its typical monopoly profit as well as the area which, under uniform pricing, would represent consumer surplus.

d. its typical monopoly profit as well as the area which, under uniform pricing, would represent consumer surplus and the deadweight loss associated with market power.

Your feedback will be greatly appreciated. Thanks in advance.

Q: Point out one product that you believe is produced by a “pure” monopoly firm (or a firm with a high degree of monopoly power).

Is it a local, regional or national monopoly?

What are some of the Barriers to Entry into this industry?

For the product listed, list substitute(s) for this “monopoly.”

Demonstrate how the relative “closeness” of the substitutes listed determines, to a large degree, effective limits to the monopoly power of these firms.

A: I believe Amtrak is a monopoly. This is a national monopoly because its available coast to coast, you may travel locally with Amtrak, state to state as well. The barrier for entry are the limited railroad systems for Amtrak, limited resource, cost to produce additional train system, and fact that Amtrak is not producing a profit even though they are a monopoly. Train transportation is not popular anymore, and is difficult for them to cut costs because they don’t have a lot of train tickets purchased. So, they increase their prices for what they do sell. Other forms of transportation are not changing the fact that it is a monopoly, but has affected it from taking control of transportation. Purchasing a rental car, bus ticket or a plane ticket has been more convenient and inexpensive. I personally have wanted to purchase a train ticket multiple times, but the routes are wrong, or the length of trip duration has exceeded my availability, and costs are not worth the time. There are smaller train lines but are not monopolized like Amtrak. Example you travel and look up Amtrak station, name of the company. When you fly the airlines is not called the airport which has multiple airlines. Train station is usually Amtrak.

1. Which of the following allows a competitive firm to exercise monopoly power?

a. Control over some significant factors of production.

b. Production of a homogenous commodity.

c. Always maximizing profit.

d. Increasing industry-wide average costs

 

2. Which of the following statements is true about monopolies?

a. Monopolies always earn economic profits.

b. If the price falls below the minimum AVC, the monopolist shuts down its plant.

 

3. If a monopolist is practicing third-degree price discrimination:

a. Customers with lower elasticities of demand will be charged the same price as customers with higher elasticities of demand.

b. Customers with lower elasticities of demand will be charged lower prices than customers with higher elasticities of demand.

c. It must allow arbitrage to occur.

d. Customers with lower elasticities of demand will be charged higher prices than customers with higher elasticities.

 

4. Economist Gordon Tullock suggests that monopolists may use up their ______________ to engage in rent-seeking behaviour.

a. Marginal revenue

b. Deadweight loss

c. Economic profits

d. Marginal costs

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