Micro Econs_Chap 13

A natural monopoly is defined as

• a market in which competition and entry are restricted by the granting of a government license.

• an industry in which economies of scale allow one firm to supply the entire market at the lowest possible cost.

• a market in which competition and entry are restricted by the granting of a patent.

• any market where one firm constitutes the entire industry.

When Dominant Pizza is willing to sell a pizza to a student who lives on-campus at a lower price than it sells the identical pizza to a student who lives a block away from the campus, the pizza firm is ________.

• practicing price discrimination

• unfair

• incurinrg a loss on on-campus sales

• eliminating all competition

For a monopoly, the market demand curve is the firm's

• supply curve.

• marginal revenue curve.

• demand curve.

• profit function.

Monopolists

• maximize revenue, not profits.

• have no short-run fixed costs.

• face downward sloping demand curves.

• are price takers.

A monopoly

• faces a perfectly elastic demand curve.

• does not need to take account of demand because it's the only seller.

• is able to raise the price it can charge for its product by increasing the quantity sold.

• is able to raise the price it can charge for its product by decreasing the quantity sold.

Which of the following is TRUE for a single-price monopolist?

• P > MR

• P < MR

• P = MR

• P = elasticity of demand

If a monopolist lowers its price and its demand is inelastic, then its

• total revenue increases.

• total revenue decreases.

• total revenue does not change

• total revenue is negative.

A single-price monopolist maximizes profits by producing the output at which

• price equals marginal cost.

• price equals marginal revenue.

• marginal revenue equals marginal cost.

• marginal cost equals average cost.

An unregulated monopoly finds that its marginal cost exceeds its marginal revenue. In order to increase its profit, the firm will

• raise its price and decrease its output.

• lower its price and increase its output.

• raise its price and increase its output.

• continue to produce this level of output because any change will lower its profit.

Why can a monopoly make an economic profit in the long run?

• because there are close substitutes for the firm's product

• because the firm is protected by barriers to entry

• because the firm produces where MR = MC

• All of the above are reasons why a monopoly can earn an economic profit in the long run.