# Chapter 9 Microeconomics (Exam 3)

The flashcards below were created by user straightupdeme on FreezingBlue Flashcards.

1. Monopoly
the sole seller of a good that has no close substitutes
2. Barriers to Entry
Factors that prevent new firms from profitably entering
3. The golden rule of profit maximization is
the same for the monopolist as it is for the perfectly competitive firm: find the rate of output for which marginal revenue equals marginal cost
Some of the consumer surplus is transferred to the monopolist in the form of profits, and some is lost to society.
5. Under perfect competition,
price equals marginal cost
6. Under monopoly,
price exceeds marginal cost
7. If there is no price that is greater than average variable cost,
the firm should shut down and minimize its losses by limiting them to the amount of the fixed costs.
8. The firm should produce if
there is some rate of output at which all variable costs and some fixed costs are covered.
9. Price Discrimination
charging different prices to different customers or charging the same consumer different prices for different units of the same good.
10. To price discriminate,
a firm must face a downward-sloping demand curve, must have at least two different groups of customers with different elasticities of demand, must be able to identify members of the different groups easily, and must be able to prevent resale of its products between members of the groups.
11. To maximize profits by price discriminating,
the monopolist equates marginal revenue for each group of customers with the marginal cost of supplying the good. The group with the more price inelastic demand will pay the higher price.
12. Perfect Price Discrimination
Charge consumers what they are willing to pay
13. In states where the government runs liquor stores, the monopoly results from
legal restrictions
14. If a small town has only one grocery store, the grocer has a monopoly as a result of
economies of scale relative to the market demand.
15. For a monopolist that does not perfectly price discriminate, marginal revenue is less than price because
the firm must lower price on all units to sell additional units and the firm faces a downward-sloping demand curve.
16. Total revenue for a monopolist is at a maximum when
marginal revenue equals zero
17. If a monopoly lowers price to sell additional units, its revenues increase if
the percentage increase in units sold is greater than the percentage decrease in price.
18. A monopolist always produces
on the elastic portion of the demand curve.

19. A monopolist will maximize profits at which rate of output in Exhibit 2?
Q 2

20. In Exhibit 2, what will the profit-maximizing rate of output be if fixed costs increase?
Q 2

21. In Exhibit 3, the monopolist's economic profits are
zero.

22. In Exhibit 3, a monopoly that perfectly price discriminates will
produce Q 2 units.

23. In Exhibit 3, what could cause the ATC curve to shift down to the AVC curve without affecting theMC curve?
elimination of fixed costs
24. The fundamental difference between a monopoly and a firm in perfect competition is that
a monopoly faces a downward-sloping demand curve.
25. In the long run, a monopolist will
adjust the scale of the firm to maximize profits.
26. Other things equal, a monopoly
does not want to raise price since it operates on the elastic portion of its demand curve.
27.
Consider Exhibit 4. What is the price-output combination if the industry is perfectly competitive? if it is a monopoly that does not price discriminate?
Perfect competition: quantity = i , price = g ; Monopoly: quantity = h , price = f

28. The monopoly in Exhibit 4 does not price discriminate. What is its deadweight loss?
bdc

29. In Exhibit 4, what are the profits of a monopolist that is able to perfectly price discriminate?
Acg

30. In Exhibit 4, what are the deadweight losses if the firm perfectly price discriminates?
zero
31. Which of the following statements about monopoly is true?
Local monopolies are more common than national monopolies.
32. Suppose a monopoly is afraid that the U.S. Justice Department is going to intervene in the market of the monopoly because of the firm's monopoly power. Which of the following actions may it take?
both lower price and lobby congress to block the Justice Department's action.
33. Other things equal, the deadweight loss of monopoly is greater
the less elastic the demand curve.
34. Which of the following could make actual deadweight losses different from what is indicated by a typical graphical analysis?
35. Which of the following is not a requirement for price discrimination?
economies of scale
36. A price-discriminating monopolist charges the highest price to
the group with the least elastic demand
37. Which type of firm is providing allocative efficiency?
both a perfectly competitive firm and a monopoly that perfectly discriminates.
 Author: straightupdeme ID: 183946 Card Set: Chapter 9 Microeconomics (Exam 3) Updated: 2012-12-01 06:36:40 Tags: Chapter Microeconomics Exam Folders: Description: Chapter 9 Microeconomics (Exam 3) Show Answers: