Microeconomics Ch. 15 Homework – Flashcards
Unlock all answers in this set
Unlock answersquestion
What is a monopoly?
answer
A monopoly is a firm that is the only seller of a good or service that does not have a close substitute.
question
If you own the only hardware store in a small town, do you have a monopoly?
answer
Yes. You would have a monopoly if your profits are not competed away in the long run.
question
Some observes say that changes in the past few years have eroded the monopoly power of local cable TV companies, even though no other cable firms have entered their markets. What are these changes?
answer
Technology now makes it feasible to receive signals relayed by satellite from distant broadcast stations & Congress has loosened regulations on rebroadcasting distant stations.
question
Are there any products for which there are no substitutes?
answer
Yes
question
Are these the only products for which it would be possible to have a monopoly?
answer
No. It is possible to have a monopoly produce a good or service with substitutes as long as they are not close substitutes.
question
Why is access to YouTube by other search engines such as Yahoo and Bing relevant to the question of whether Google has a monopoly in the Internet search engine market? Access to YouTube by other search engines such as Yahoo and Bing is relevant because...
answer
internet search results with a link to YouTube videos make Google the dominant monopoly in the market.
question
Economists have developed broad and narrow definitions to identify monopolies. What is a characteristic that supports a firm being classified as a monopoly? Economist could find that a firm is a monopoly if...
answer
it earns profit in the long run
question
What are the four most important ways a firm becomes a monopoly? The four main reasons a firm becomes a monopoly are:
answer
the government blocks entry, control of a key resource, network externalities, and economies of scale.
question
If patents reduce competition, why does the federal government grant them? The federal government grants patents...
answer
to encourage firms to spend money on research to create new products.
question
What is a public franchise?
answer
A public franchise is a firm designated by the government as the only legal provider of a good or service.
question
Are all public franchises natural monopolies? All public franchises ______ natural monopolies, and all natural monopolies ______public franchises.
answer
are not; are not
question
What is "natural" about a natural monopoly?
answer
A natural monopoly develops automatically due to economies of scales.
question
The U.S. Postal Service (USPS) is a monopoly because the federal government has blocked entry into the market for delivering first-class mail. Is it also a natural monopoly? How can we tell?
answer
The USPS is probably not a natural monopoly because if it were, then a law blocking competition would not be necessary.
question
What would happen if the law preventing competition in this market were removed?
answer
If the law preventing competition were removed, then new firms would likely enter the market.
question
To have a monopoly, barriers to entering the market must be so high that no other firms can enter. Do network externalities create or remove barriers to entry? Explain.
answer
Network externalities create barriers to entry because if a firm can attract enough customers initially, it can attract additional customers as its product's value increases by more people using it, which attracts even more customers.
question
How do network externalities affect barriers to entry?
answer
Network externalities serve as barriers to entry because new products are less useful.
question
What is the relationship between a monopolist's demand curve and the market demand curve?
answer
A monopolist's demand curve is the same as the market demand curve.
question
What is the relationship between a monopolist's demand curve and its marginal revenue curve?
answer
A monopolist's marginal revenue curve has twice the slope of its demand curve, because to sell more output, a monopoly must lower price.
question
A monopolist is a price maker because
answer
when a monopolist raises its price, it loses some but not all customers.
question
Suppose that a monopoly becomes a perfectly competitive industry. As a result, consumer surplus will _________, producer surplus will__________, and deadweight loss will ___________.
answer
Increase, decrease, decrease
question
Suppose that a perfectly competitive industry becomes a monopoly. As a result, consumer surplus will _________, producer surplus will__________, and deadweight loss will ___________.
answer
Decrease, increase, increase
question
Explain why market power leads to deadweight loss. Firms with market power create deadweight loss because they
answer
charge a price that is greater than marginal cost to maximize profits.
question
The total deadweight loss from market power for the economy is ____
answer
small
question
When a monopoly maximizes profit, deadweight loss will be larger if demand is
answer
inelastic because price will be farther from marginal cost
question
What is the purpose of the antitrust laws? Who is in charge of enforcing them?
answer
1.)Antitrust laws are intended to make illegal any attempts to form a monopoly or to collude.
2.)The Federal Trade Commission & The Antitrust Division of the U.S. Department of Justice
question
Give an example of an antitrust law and give a brief description of how that law affects the government's antitrust policy.
answer
The Clayton Act prohibited firms from buying stock in competitors.
question
What is the government's policy on collusion in the United States? Explain the rationale for this policy. In the United States
answer
the government makes collusion illegal with antitrust laws because monopolies reduce economic efficiency.
question
The guidelines used by the Department of Justice and the Federal Trade Commission when evaluating proposed mergers include three main parts. What are they?
answer
market definition, measure of concentration, and merger standards.
question
What did the Robinson-Patman Act do?
answer
The Robinson-Patman Act prohibited charging buyers different prices if the result would reduce competition.
question
What did the Clayton Act do?
answer
The Clayton Act prohibited firms from buying stock in competitions.
question
What did the Cellar-Kefauver Act do?
answer
The Cellar-Kefauver Act prohibited any merger that would reduce competition.
