Economics 10a Chapter Notes - Chapter 15: Substitute Good, Deadweight Loss, Marginal Cost

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silverantelope552

10 Feb 2014

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Monopoly: a firm that is the sole seller of a product without close substitutes. Chapter 15 economics: monopoly: cause: high barriers to entry other firms cannot enter the market and compete with it. Monopoly resources: a key resource for production is owned by a single firm. If there is only one well in a town, then the owner of the well has significant market power. There is no price effect for competitive firms because they can sell all they want to at market price (price taker) But this creates dwl for the government because it must raise taxes to pay for the subsidy: regulators can allow the monopolist to charge a price higher than mc by charging. Atc, rendering the economic profit to be zero this creates dwl because the monopolist"s price no longer reflects the marginal cost of producing the good.

Related Questions

11)

A constant-cost, perfectly competitive industry experiences a permanent increase in demand. In adjusting to this change, what will happen to the price of the product?

	It will increase in the short-run and then decrease in the long-run, but end up above its original level in the long-run.
	It will increase in the short-run and then increase further in the long-run.
	It will increase in the short-run and then decrease back to its original level in the long-run.
	It will increase in the short-run and then decrease below its original level in the long-run.
	It will decrease in the short-run but return to its original level in the long-run.

12)

Assume that a perfectly competitive firm owns or rents a higher-quality resource that results in lower average total costs and higher economic profits in the short run. What will happen in the long-run?

	The price of the higher-quality resource will be bid upward resulting in economic rents and equalizing costs across firms.
	New firms will enter and compete with any excess profits away.
	None of the other answers is correct.
	The government will tax away any excess profits.
	The firm with the higher-quality resource will earn positive economic profits in the long run.

13)

Which of the following are characteristics of long-run equilibrium?

	No firm has an incentive to change its level of output.
	No firm has an incentive to change its plant size.
	Economic profit is zero
	All of the above
	None of the above

14)

Which of the following statements is consistent with the textbookâs analysis of perfect competition?

	Although individual perfectly competitive firms wonât pay to advertise, the industry as a whole may well advertise.
	Higher costs for one firm in the industry will result in that firm charging a higher price than the other firms in the industry.
	If all the firms in an industry charge an identical price for their products, this is clear evidence of collusive behavior.
	All of the above
	None of the above

15)

The assumptions that define the market structure known as monopoly include which of the following?

	High barriers to entry.
	There is one seller.
	There are no close substitutes available.
	All of the above
	None of the above

amethystbear647

1.
A monopolist faces the following demand curve:

Price Quantity Demanded

$51 1

$47 2

$42 3

$36 4

$29 5

$21 6

$12 7

The monopolist has total fixed costs of $60 and has a constantmarginal cost of $15. What is the profit-maximizing level ofproduction?

A) 5 units
B) 3 units
C) 2 units
D) 4 units
2.
A monopolist faces the following demand curve:

Price Quantity Demanded

$10 5

$9 10

$8 16

$7 23

$6 31

$5 49

$4 52

$3 60

The monopolist has total fixed costs of $40 and a constant marginalcost of $5. At the profit-maximizing level of output, themonopolistâs average total cost is

A) $6.74
B) $9.00
C) $7.50
D) $5.82
3.
A monopoly market

A) generally fails to maximize total economic well-being.
B) generally fails to maximize producer surplus.
C) always maximizes total economic well-being.
D) always minimizes consumer surplus.
4.
For a monopoly, the supply curve is a portion of its
A) none of the above; a monopoly does not have a supplycurve.
B) average total cost curve.
C) marginal revenue curve.
D) marginal cost curve.
5.
A monopoly firm can sell 200 units of output for $36.00 per unit.Alternatively, it can sell 201 units of output for $35.80 per unit.The marginal revenue of the 201st unit of output is
A) $â35.80.
B) $4.20.
C) $â4.20.
D) $35.80.
6.
If a monopolist sells 100 units at $8 per unit and realizes anaverage total cost of $6 per unit, what is the monopolist'sprofit?
A) $800
B) $400
C) $600
D) $200
7.
A monopolist is a price
A) setter, and therefore has no demand curve.
B) setter, and therefore has no supply curve.
C) taker, and therefore has no supply curve.
D) setter, and therefore has no variable cost curve.
8.
To define a monopoly, we cite the following characteristics: (i)The firm is the sole seller of its product. (ii) The firmâs productdoes not have close substitutes. (iii) The firm generates a largeeconomic profit. (iv) The firm is located in a small geographicmarket.
A) (ii) and (iv)
B) All of the above are correct.
C) (i) and (ii)
D) (i) and (iii)
9.
Consider a transportation corporation named C.R. Evans that hasjust completed the development of a new subway system in amedium-sized town in the Northwest. Currently, there are plenty ofseats on the subway, and it is never crowded. Its capacity farexceeds the needs of the city. After just a few years of operation,the shareholders of C.R. Evans experienced incredible rates ofreturn on their investment, due to the profitability of thecorporation.

Which of the following statements are most likely to be true? (i)New entrants to the market know they will earn a smaller piece ofthe market than C.R. Evans currently has. (ii) C.R. Evans is mostlikely experiencing increasing average total cost. (iii) C.R. Evansis a natural monopoly.

A) (ii) and (iii)
B) All of the above are correct.
C) (i) and (iii)
D) (i) and (ii)
10.

Quantity
Price
Total Revenue
Average Revenue
Marginal Revenue
1
$35
$35

2

64
32
29
3
$29

4

17
5
$23

11
6

120

7
$17

-1
8

-7
9

99
11
-13
10

80
8

If the monopolist sells 8 units of its product, how much totalrevenue will it receive from the sale?

You wil have to complete the entries in this table to get ananswer. It is a wothwhile exercise and I encourage you to completethe table.

HINT: (a.) Total Revenue = Price x Quantity. (So for quantity of 3x price of $29 = 87 total revenue)

(b) Average Revenue is the same as Price. (So column 2 and column 4would be the same. Calculate to see if that is correct)

(c) Marginal Revenue = Change in TR divided by change in quantity.(You calculated TR = 87 for Q=3. Thus to find MR for Q = 3, findthe change in TR= 87 - 64 and divided by one).

A) 112
B) It cannot be determined from the information provided.
C) 164
D) 40
11.
What conditions need to be present for a firm to be able to use'price discrimination?'
A) Firm should not be perfectly competitive; the market can beseparated according to different elasticities; items can beresold
B) Firm should be perfectly competitive; the market can beseparated according to different elasticities; resale of the itemsis not possible.
C) Firm should not be perfectly competitive; buyers should havesame elasticities;; resale of the items is not possible.
D) Firm should not be perfectly competitive; the market can beseparated according to different elasticities; resale of the itemsis not possible.
12.
If the government regulates the natural monopoly by asking it tocharge a price that is equal to its marginal cost (P=MC) theregulated monopoly will -------- so instead the government ends upletting it charge a price equal to its ------
A) have a profit; fixed cost
B) have a profit; average cost
C) have a loss; variable cost
D) have a loss; average cost

periwinklesea-lion695

1. To maximize profits, a firm should produce output up to the point where

A. marginal revenue equals marginal cost

B. price equals marginal cost

C. the gap between the demand curve and the ATC is the greatest

D. all of the above

E. answers a and b, but not c

2. Which statement is false?

A. a profit maximizing firm will increase production when price exceeds marginal cost

B. the lowest point on a firm's short-run supply curve is at the shut-down point

C. A firm will operate at that ouput where MC equals MR only when it is maximizing profits

D. A profit-maximizing firm will decrease production when marginal cost exceeds price.

3. which statement is true?

A. all monopolies are good

B. All monopolies are bad

C. Most natural monopolies are government regulated or government owned

D. None of these statements is true

4. There are _____ limits to monopoly power

A. no

B. some

C. many

5. Which statement is true?

A. the monopolist's most efficient output is her most profitable output as well

B. the monopolist charges a higher price than the perfect competitor in the long run.

C. all monopolists have control over an essential resource.

D. none is true

6. As a firm grows larger

A. economies of scale set in, then diseconomies of scale.

B. diseconomies of scale set in, then economies of scale.

C. economies of scale and diseconomies of scale set in at the same time.

D. neither economies of scale nor diseconomies of scale set in.

7. A monopolist operates at the minimum point of her ATC curve

A. only in the short run

B. only in the long run

C. in both the short run and the long run

D. in neither the short run nor the long run

8. A natural monopoly

A. has an average cost curve that reaches minimum possible average cost at a low level of output.

B. has a marginal cost curve that is steeply upward slopoing.

C. is usually subject to antitrust suits

D is usually allowed to choose its price so as to maximize profits in the United States.

E. occurs when a single firm can supply the entire market demand for a product at a lower average cost than would be possible if two or more firms supplied the market.

9. For a monopolist, the price of the product

A. always equals the marginal revenue

B. is always less than the marginal revenue

C. exceeds the marginal revenue

D. always equals the marginal cost of the product

10. Monopolies are usually viewed with concern from an economic standpoint since

A. size is ingerently dangerous; the larger ther firm, the more likely it is to squeeze out the "little producer"

B. resources may be allocated in an efficient manner.

C. the government may be put at the mercy of several large producers

D. always equals the marginal cost of the product

Economics 10a Chapter Notes - Chapter 15: Substitute Good, Deadweight Loss, Marginal Cost

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