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Exam 14: Monopoly

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Question 1

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What are the two keys that enable a monopolist to successfully price discriminate?

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(1) The monopolist must be able to separ...

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Question 2

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Define monopoly. What is the primary reason for the existence of a monopoly? Describe three types of barriers to entry.

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Monopoly is a market structure in which ...

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Question 3

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The law of demand states that the greater the quantity of a good purchased, the lower its price will have to be, other things held constant. Explain why monopoly firms see this law in action but perfectly competitive firms do not.

Demonstrate graphically and explain verbally an example where a monopolist is better-off shutting down.

You own four firms that produce different products. The following table summarizes the conditions in each firm. After calculating the missing numbers for each firm, choose a decision for each firm from among the following four decisions, and explain how you reached each particular decision. (a) continue producing the same output level (b) shut down (c) increase output (d) decrease output $\begin{array} { | c | c | c | c | c | c | c | c | c | } \hline \text { Firm } & \text { P } & \text { MR } & \text { TR } & \text { Q } & \text { TC } & \text { MC } & \text { ATC } & \text { AVC } \\\hline \text { A } & 11 & 8 & & 20 & 200 & 5 & & 9 \\\hline \text { B } & 3 & 1 & & 100 & & 1.5 & 2.5 & 2 \\\hline \text { C } & 4 & 2 & 200 & & & 2 & 7 & 5 \\\hline \text { D } & 8 & 5 & & 10 & 70 & 5 & & 6 \\\hline\end{array}$

Give three real world examples of price discrimination practices that some companies follow.

Briefly discuss three possible barriers to entry for an industry and assess whether these barriers are good or bad for consumers or society as a whole.

Compare how P, ATC, MC, and MR are related to each other in the long-run equilibrium setting for a perfectly competitive firm and a monopolistically competitive firm.

Demonstrate graphically and explain verbally the case of a monopolist earning zero economic profit.

What is the key difference between a perfectly competitive firm and a monopolist with respect to the relationship between price and marginal revenue?

Demonstrate graphically and explain verbally the case of a monopolistically competitive firm earning a positive economic profit. Is this firm in a short run or a long-run equilibrium? In the short run, how does this case differ from the monopoly market outcome?

What are the four distinguishing characteristics of monopolistic competition? How does monopolistic competition differ from oligopoly?

In long-run equilibrium in both perfect competition and monopolistic competition there is zero economic profit and yet the two cases are not identical. What is the key difference between them?

In what ways is monopolistic competition different from perfect competition? In what ways are they alike?

Compare how P, ATC, MC, and MR are related to each other in the long-run equilibrium of a perfectly competitive firm and a monopolistically competitive firm. What is the key difference between them?

How are a monopolist's price, output, and profit determined graphically?

Why will a monopolistic firm maximize total profit if it produces at the output level where marginal revenue equals marginal cost?

Graphically show the transition from short-run to long-run equilibrium for a monopolistic competitor. Begin by drawing a graph of short-run equilibrium. In the graph, have the firm make an economic profit at its profit-maximizing level of output. Identify its short-run profit, and then show and describe how profits will disappear in long-run equilibrium.

Demonstrate graphically and explain verbally an example of a monopolist earning a positive economic profit.

Consider the following diagram: Demonstrate graphically and explain verbally why moving away from producing output level Q₀ will result in a decrease in profit for this monopolist.