Liberty University ECON 213 InQuizitive chapter 10 complete solutions correct answers updated

Liberty University ECON 213 InQuizitive chapter 10 complete solutions correct answers updated

Chapter 10: Understanding Monopoly

Order the following businesses from the least to the greatest amount of monopoly power.

Match the appropriate barrier to entry with the correct scenario.

Drag the labels below to the appropriate positions on the monopoly graph to show the firm’s profit-maximizing combination.

Drag the correct words or phrases into the blanks to complete the following paragraph.

A monopolist follows the same – rule as a firm in a competitive market: produce until marginal cost equals marginal revenue. As prices go –, the monopolist gains more customers. At the same time, this – the revenue from each individual customer, including the existing ones. However, up to a certain point the increased sales volume – the revenue loss from the price decrease.

Perfectly competitive firms and monopolies have different price and output structures, but both types of firms operate using the profit-maximizing rule. Drag the following labels to the appropriate places on the graph to show each firm’s profit-maximizing output and price.

What are some problems a monopoly may cause?

Which of the following statements is correct?

Government capping of a monopolist’s prices will lead to a stable market.

Turning a private monopolist into a government-run business ensures that the consumer’s best interests are a priority.

Regulating a monopoly leads to cost inefficiencies.

Breaking up a monopoly will always reduce the amount of inefficiency in the market.

Consider the following graph for a monopoly. Regardless of the firm’s marginal cost of production, it will never increase its production to serve more than 5,000 customers.

Due to the frequent occurrence of illegal file sharing and pirating, copyright holders in the music and movie business always lose more than they gain from the copyright protections.

Place in order the steps we can use to calculate a monopolist’s profit using a graph.

Trace the ideal output level to the demand curve to determine the price.

Calculate the difference between the price and cost, and multiply by the profit-maximizing output.

Model the demand curve and marginal revenue curve.

Find the quantity where the firm maximizes profits by finding where marginal revenue equals marginal cost.

A monopoly has complete control over the market price of a product, and therefore always makes a profit.

Drag the words and/or phrases below into the blanks to complete the following passage about monopolies.

Monopolists want to protect their market position by – potential competitors. A common tactic is to lobby for –, such as –. Such lobbying is a form of –: use of political means to secure a – position.

Is there any way for a monopoly to operate more efficiently than a competitive market? Why or how?

Which of the following traits describe a competitive market, and which describe a monopoly?

Why would it be beneficial for patents to be temporary?

Limited-duration patents are a way to restrict sales of a product until it has proven to be safe.

Having patents expire prevents firms from selling products after they have outlived their usefulness.

Patents give firms the incentive to innovate in the short run, but patents’ expiration encourages more competition in the long run.

How was each monopoly situation successfully eliminated? Note that all labels may not be used.

A monopoly has the following pricing and revenue structure.

If the firm’s marginal cost per customer is $30, and the firm wants to follow the profit-maximizing rule, what would be the firm’s quantity of customers and price charged per customer?

Calculate the deadweight loss associated with the monopoly situation shown.

A city has several small taxicab companies that compete against one another in the market. Eventually, these small companies agree to merge and take over the market as a monopoly. Which areas on the graphs below represent loss to consumers as a result of the newly formed monopoly?

Perfectly competitive and monopoly firms are complete opposites.

The monopoly demand curve is –, while the perfectly competitive firm’s demand curve is –. This is because a monopoly is the only producer in an industry, so the monopoly firm’s – curve is the same as the market demand curve, while the perfectly competitive firm produces in a market with – competitors.

Some monopolies are formed because they can drive out rivals with lower costs and prices.

Large public water and sewer companies often become – monopolies because they benefit from –. Although the company faces high start-up costs, the firm experiences – average – production costs as it expands and adds more customers. Smaller competitors would experience – average costs and would be less –.

Based on the given information, which of the following are places where a monopoly is more likely to spring up?

Because suppliers in natural monopolies, such as public utilities, enjoy economies of scale, they can work with lower production costs than can a large number of smaller companies. At the same time, monopolists may charge very high prices, and as a result, the government often regulates these firms.

Match each regulatory environment to the graph depicting the resulting level of production.

The following is a table showing the quantity of customers to the price of a product that a monopolist is selling. Based on this information, at what price does the monopolist first see negative marginal revenue?

Q

P

0

$60

100

$45

200

$30

300

$15

400

$0

Calculate the amount of consumer surplus transferred to the monopolist in the monopoly situation shown.

Which of the following are examples of natural barriers to entry?

BioCorp develops a new skin cancer drug for which they receive a patent.

Smaller companies with smaller production processes have higher per unit costs than larger companies.

A local government gives a construction company the exclusive right to build all the town’s future buildings.

Lenders are hesitant to provide funding for new firms that will compete with a large, well-established firm.

Over time, a firm takes control of 85% of the world’s supply of a chemical used in the production of plastic.

Complete the paragraph describing the emergence of monopolies.

When old, large companies become monopolists, this – always deliberate. Entry into a market can become difficult due to a lack of funding for – companies. Also, –make it hard for a small, new firm to operate as efficiently as a large, established one.

The graphs below show the price effect (pink) and output effect (pale green) when a certain monopolist changes the price that it charges. Based on the price effect and output effect, which two of these price changes would be beneficial to the monopolist?

What are the pros and cons of patents and copyrights for society?

They may have unintended consequences, leading to black market behavior.

They serve as a form of property rights, which creates incentives to innovate.

They expire after a period of time, allowing competitors to develop lower-priced versions in the long run.

They generate high profits, giving firms money to invest in research and development of new products.

They keep sale prices high, which may prevent some consumers from having access to the products.

Based on the following graph, how much should the monopolist charge for its product?

Monopolists are price makers. Why is this not the case for firms in a competitive market?

Price controls prevent firms in a competitive market from pricing their products as they think best.

Even if one or more of their competitors goes out of business, other competitors will appear.

Other sellers sell products that are similar if not identical.

Their product only makes up a small portion of the market’s total product.

The economy is generally better off when monopolies are broken up. Why is it hard for governments to do this?

If a monopoly splits up, a new one will form from the resulting competitive firms.

Competitive firms cause just as many problems for consumers.

Monopolies produce more social welfare than competitive markets, so breaking them up would have large consequences.

Monopolies often have laws to protect them.

Sometimes keeping a monopoly intact is the best option.

Monopolists have a lot of money to fend off antitrust lawsuits.

Drag the words and/or phrases into the blanks to complete the following passage.

Natural monopolies can develop due to –. In this case, breaking up a monopolist may lead to higher – due to inefficiency. Instead, governments can seek to remove the output inefficiency of a monopoly by capping prices at a level beneficial for – but not for –.

Apply the appropriate label to each characteristic of a small-town veterinarian that tends to make him a monopolist.

A small-town monopolist determines that lowering prices will bring in more customers. Following the price drop, however, the firm discovers that even though the number of customers increased as hoped, the firm’s total profit is falling. What could have gone wrong?

Which of the following are monopolists?

a large company that has bought out all the competition

sole owner of a barbecue stand at a festival

a company with a product, like Vaseline, whose name is used generically

a major car manufacturer, like General Motors

The lack of competition in a monopoly leads to a horizontal demand curve, as shown, for the market as a whole.

Which of the following statements are true regarding tariffs?

Tariffs lessen the influence of domestic companies.

Tariffs allow for gains from trade with other countries.

Tariffs bolster the power of monopolies by reducing competition.

Tariffs impose high barriers to entry.