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1、Chapter 15MonopolyTRUE/FALSE1.Monopolists can achieve any level of profit they desire because they have unlimited market power.ANS:FDIF:2REF:15-0NAT:AnalyticLOC:MonopolyTOP:MonopolyMSC:Interpretive2.Even with market power, monopolists cannot achieve any level of profit they desire because they will
2、sell lower quantities at higher prices.ANS:TDIF:2REF:15-0NAT:AnalyticLOC:MonopolyTOP:MonopolyMSC:Interpretive3.One characteristic of a monopoly market is that the product is virtually identical to products produced by competing firms.ANS:FDIF:2REF:15-1NAT:AnalyticLOC:MonopolyTOP:MonopolyMSC:Definiti
3、onal4.The fundamental cause of monopolies is barriers to entry.ANS:TDIF:2REF:15-1NAT:AnalyticLOC:MonopolyTOP:MonopolyMSC:Interpretive5.The De Beers Diamond company advertises heavily to promote the sale of all diamonds, not just its own. This is evidence that it has a monopoly position to some degre
4、e.ANS:TDIF:1REF:15-1NAT:AnalyticLOC:MonopolyTOP:MonopolyMSC:Interpretive6.The De Beers Diamond company is not worried about differentiating its product from all other gemstones.ANS:FDIF:1REF:15-1NAT:AnalyticLOC:MonopolyTOP:MonopolyMSC:Interpretive7.The amount of power that a monopoly has depends on
5、whether there are close substitutes for its product.ANS:TDIF:1REF:15-1NAT:AnalyticLOC:MonopolyTOP:MonopolyMSC:Interpretive8.If the ABC company owns the exclusive rights to mine land in Afghanistan for Lapis Lazuli, a rare stone used in jewelry which is found only in Afghanistan, the company benefits
6、 from a barrier to entry.ANS:TDIF:1REF:15-1NAT:AnalyticLOC:MonopolyTOP:MonopolyMSC:Applicative9.Copyrights and patents are examples of barriers to entry that afford firms monopoly pricing powers.ANS:TDIF:2REF:15-1NAT:AnalyticLOC:MonopolyTOP:PatentsMSC:Interpretive10.If the government deems a newly i
7、nvented drug to be truly original, the pharmaceutical company is given the exclusive right to manufacture and sell the drug for 50 years.ANS:FDIF:1REF:15-1NAT:AnalyticLOC:MonopolyTOP:PatentsMSC:Interpretive11.A natural monopoly has economies of scale for most if not all of its range of output.ANS:TD
8、IF:2REF:15-1NAT:AnalyticLOC:MonopolyTOP:Natural monopolyMSC:Applicative12.Declining average total cost with increased production is one of the defining characteristics of a natural monopoly.ANS:TDIF:1REF:15-1NAT:AnalyticLOC:MonopolyTOP:Natural monopolyMSC:Definitional13.A monopolist maximizes profit
9、 by producing an output level where marginal cost equals price.ANS:FDIF:2REF:15-2NAT:AnalyticLOC:MonopolyTOP:Profit maximizationMSC:Interpretive14.A monopolist produces an output level where marginal revenue equals marginal cost and charges a price where marginal cost equals average total cost.ANS:F
10、DIF:2REF:15-2NAT:AnalyticLOC:MonopolyTOP:Profit maximizationMSC:Applicative15.Average revenue for a monopoly is the total revenue divided by the quantity produced.ANS:TDIF:1REF:15-2NAT:AnalyticLOC:MonopolyTOP:Average revenueMSC:Definitional16.For a monopoly, marginal revenue is often greater than th
11、e price they charge for their good.ANS:FDIF:1REF:15-2NAT:AnalyticLOC:MonopolyTOP:Marginal revenueMSC:Interpretive17.Like competitive firms, monopolies choose to produce a quantity in which marginal revenue equals marginal cost.ANS:TDIF:2REF:15-2NAT:AnalyticLOC:MonopolyTOP:Profit maximizationMSC:Inte
12、rpretive18.Like competitive firms, monopolies charge a price equal to marginal cost.ANS:FDIF:2REF:15-2NAT:AnalyticLOC:MonopolyTOP:Profit maximizationMSC:Interpretive19.A monopolist produces where P MC = MR.ANS:TDIF:2REF:15-2NAT:AnalyticLOC:MonopolyTOP:Profit maximizationMSC:Interpretive20.A monopoli
13、st produces where P = MC = MR.ANS:FDIF:2REF:15-2NAT:AnalyticLOC:MonopolyTOP:Profit maximizationMSC:Interpretive21.A monopolist does not have a supply curve because the firms decision about how much to supply is impossible to separate from the demand curve it faces.ANS:TDIF:2REF:15-2NAT:AnalyticLOC:M
14、onopolyTOP:Supply curveMSC:Interpretive22.A monopolists supply curve is vertical.ANS:FDIF:1REF:15-2NAT:AnalyticLOC:MonopolyTOP:Supply curveMSC:Applicative23.A monopolists supply curve is horizontal.ANS:FDIF:1REF:15-2NAT:AnalyticLOC:MonopolyTOP:Supply curveMSC:Applicative24.During the life of a drug
15、patent, the monopoly pharmaceutical firm maximizes profit by producing the quantity at which marginal revenue equals marginal cost.ANS:TDIF:1REF:15-2NAT:AnalyticLOC:MonopolyTOP:Profit maximizationMSC:Interpretive25.The socially efficient quantity is found where the demand curve intersects the margin
16、al cost curve.ANS:TDIF:2REF:15-3NAT:AnalyticLOC:MonopolyTOP:Deadweight lossMSC:Interpretive26.The deadweight loss for a monopolist equals one-half of its profits for any given level of output.ANS:FDIF:2REF:15-3NAT:AnalyticLOC:MonopolyTOP:Deadweight lossMSC:Interpretive27.A monopoly creates a deadwei
17、ght loss to society because it earns both short-run and long-run positive economic profits.ANS:FDIF:2REF:15-3NAT:AnalyticLOC:MonopolyTOP:Deadweight lossMSC:Interpretive28.A monopoly creates a deadweight loss to society because it produces less output than the socially efficient level.ANS:TDIF:2REF:1
18、5-3NAT:AnalyticLOC:MonopolyTOP:Deadweight lossMSC:Interpretive29.Suppose a profit-maximizing monopolist faces a constant marginal cost of $10, produces an output level of 100 units, and charges a price of $50. The socially efficient level of output is 200 units. Assume that the demand curve and marg
19、inal revenue curve are the typical downward-sloping straight lines. The monopoly deadweight loss equals $4,000.ANS:FDIF:3REF:15-3NAT:AnalyticLOC:MonopolyTOP:Deadweight lossMSC:Analytical30.Suppose a profit-maximizing monopolist faces a constant marginal cost of $10, produces an output level of 100 u
20、nits, and charges a price of $50. The socially efficient level of output is 200 units. Assume that the demand curve and marginal revenue curve are the typical downward-sloping straight lines. The monopoly deadweight loss equals $2,000.ANS:TDIF:3REF:15-3NAT:AnalyticLOC:MonopolyTOP:Deadweight lossMSC:
21、Analytical31.Suppose a profit-maximizing monopolist faces a constant marginal cost of $20, produces an output level of 100 units, and charges a price of $50. The socially efficient level of output is 200 units. Assume that the demand curve and marginal revenue curve are the typical downward-sloping
22、straight lines. The monopoly deadweight loss equals $1,500.ANS:TDIF:3REF:15-3NAT:AnalyticLOC:MonopolyTOP:Deadweight lossMSC:Analytical32.In order for a firm to maximize profits through price discrimination, the firm must have some market power and be able to prevent arbitrage.ANS:TDIF:2REF:15-4NAT:A
23、nalyticLOC:MonopolyTOP:Price discriminationMSC:Interpretive33.Price discrimination is prohibited by antitrust laws.ANS:FDIF:2REF:15-4NAT:AnalyticLOC:MonopolyTOP:Price discriminationMSC:Interpretive34.A monopolist earns higher profits by charging one price than by practicing price discrimination.ANS:
24、FDIF:3REF:15-4NAT:AnalyticLOC:MonopolyTOP:Price discriminationMSC:Interpretive35.A monopolist that can practice perfect price discrimination will not impose a deadweight loss on society.ANS:TDIF:3REF:15-4NAT:AnalyticLOC:MonopolyTOP:Perfect price discriminationMSC:Interpretive36.By selling hardcover
25、books to die-hard fans and paperback books to less enthusiastic readers, the publisher is able to price discriminate and raise its profits.ANS:TDIF:1REF:15-4NAT:AnalyticLOC:MonopolyTOP:Price discriminationMSC:Interpretive37.Movie theatres charge different prices to different groups of people based o
26、n the differing marginal costs that exist from group to group.ANS:FDIF:1REF:15-4NAT:AnalyticLOC:MonopolyTOP:Price discriminationMSC:Interpretive38.Airlines often separate their customers into business travelers and personal travelers by giving a discount to those travelers who stay over a Saturday n
27、ight.ANS:TDIF:1REF:15-4NAT:AnalyticLOC:MonopolyTOP:Price discriminationMSC:Interpretive39.University financial aid can be viewed as a type of price discrimination.ANS:TDIF:1REF:15-4NAT:AnalyticLOC:MonopolyTOP:Price discriminationMSC:Interpretive40.By offering lower prices to customers who buy a larg
28、e quantity, a monopoly is price discriminating.ANS:TDIF:1REF:15-4NAT:AnalyticLOC:MonopolyTOP:Price discriminationMSC:Interpretive41.Goods that do not have close substitutes have downward-sloping demand curves.ANS:TDIF:1REF:15-4NAT:AnalyticLOC:MonopolyTOP:Demand curveMSC:Interpretive42.If the governm
29、ent regulates the price a natural monopolist can charge to be equal to the firms average total cost, the firm has no incentive to reduce costs.ANS:TDIF:2REF:15-5NAT:AnalyticLOC:MonopolyTOP:RegulationMSC:Interpretive43.If the government regulates the price a natural monopolist can charge to be equal
30、to the firms marginal cost, the government will likely need to subsidize the firm.ANS:TDIF:2REF:15-5NAT:AnalyticLOC:MonopolyTOP:RegulationMSC:Interpretive44.Antitrust laws give the Justice Department the authority to challenge potential mergers between companies in an effort to safeguard society fro
31、m monopoly power.ANS:TDIF:1REF:15-5NAT:AnalyticLOC:MonopolyTOP:AntitrustMSC:Interpretive45.Some companies merge in order to lower costs through efficient joint production.ANS:TDIF:1REF:15-5NAT:AnalyticLOC:MonopolyTOP:AntitrustMSC:Interpretive46.A common solution to monopoly in European countries is
32、public ownership.ANS:TDIF:1REF:15-5NAT:AnalyticLOC:MonopolyTOP:MonopolyMSC:Interpretive47.The proper level of government intervention is unclear when dealing with a monopoly.ANS:TDIF:1REF:15-5NAT:AnalyticLOC:MonopolyTOP:RegulationMSC:Interpretive48.The government may choose to do nothing to reduce m
33、onopoly inefficiency because the “fix” may be worse than the problem.ANS:TDIF:1REF:15-5NAT:AnalyticLOC:MonopolyTOP:Do nothingMSC:Interpretive49.Government intervention always reduces monopoly deadweight loss.ANS:FDIF:1REF:15-5NAT:AnalyticLOC:MonopolyTOP:Do nothingMSC:Interpretive50.Firms with substa
34、ntial monopoly power are quite common because many goods are truly unique.ANS:FDIF:1REF:15-6NAT:AnalyticLOC:MonopolyTOP:MonopolyMSC:InterpretiveSHORT ANSWER1.Describe how government is involved in creating a monopoly. Why might the government create one? Give an example.ANS:The government can create
35、 a monopoly by giving a single firm the exclusive right to produce some good. Monopolies are created for many reasons. When an industry is characterized by high fixed costs, a single firm can usually supply the entire market at a lower cost than having multiple firms in the industry. Examples includ
36、e most utility companies. The government also grants sole ownership of inventions through patent laws in order to help eliminate the market failure that is likely to otherwise occur in the markets for those goods. Patents encourage creativity and research and development.DIF:2REF:15-1NAT:AnalyticLOC
37、:MonopolyTOP:Patents | RegulationMSC:Applicative2.What is the defining characteristic of a natural monopoly? Give an example of a natural monopoly.ANS:The defining characteristic of a natural monopoly is when a firm can supply a good or service to an entire market at a lower cost than could two or m
38、ore firms. The example in the text is a bridge.DIF:2REF:15-1NAT:AnalyticLOC:MonopolyTOP:Natural monopolyMSC:Definitional3.In the market for home heating consumers typically have several options (e.g., electricity, heating fuel, natural gas, propane, etc.), yet we often think of firms in this industr
39、y as behaving like monopolists. Discuss the context in which your electricity provider is a monopolist. Is this characterization universally applicable? Explain your answer.ANS:In this case, the firms are monopolists in the short run when consumers are unable to change their home heating systems. In
40、 the long run, consumers can change from electric appliances to natural gas appliances and thus lessen the monopoly power of utility providers. As long as consumers are able to substitute, in the long run the monopoly pricing power is reduced.DIF:3REF:15-2NAT:AnalyticLOC:MonopolyTOP:MonopolyMSC:Anal
41、ytical4.There has been much discussion of deregulating electricity and natural gas delivery companies in the United States. Discuss the likely effect of deregulation on prices in these two industries.ANS:If deregulation leads to increased competition, then production and prices should move toward th
42、e competitive equilibrium. If deregulation does not lead to increased competition, then the monopoly production and price outcome is likely. The success of deregulation movements hinges on their ability to use markets to promote competitive market outcomes. If the industry is characterized by econom
43、ies of scale, deregulation may worsen rather than improve the market as costs and prices could rise if more than one firm supplies output to the market.DIF:2REF:15-2NAT:AnalyticLOC:MonopolyTOP:RegulationMSC:Analytical5.Explain how a profit-maximizing monopolist chooses its level of output and the pr
44、ice of its goods.ANS:A profit-maximizing monopolist produces the output level where marginal revenue equals marginal cost and charges the corresponding price from the market demand curve. Note that a monopolist charges a price that exceeds marginal cost, unlike a competitive firm, for which price eq
45、uals marginal cost.DIF:2REF:15-2NAT:AnalyticLOC:MonopolyTOP:Profit maximizationMSC:Analytical6.Graphically depict the deadweight loss caused by a monopoly. How is this similar to the deadweight loss from taxation?ANS:A profit-maximizing monopolist will choose to produce Q0 units of output and sell a
46、t price P0. However, marginal cost is MC0. This is identical to the deadweight loss of taxation when the tax forces a wedge between market price and marginal cost.DIF:2REF:15-3NAT:AnalyticLOC:MonopolyTOP:Deadweight lossMSC:Analytical7.What is the deadweight loss due to profit-maximizing monopoly pricing under the following conditions: The pri
