Economics Chapter on Market Structures

Questions and Answers

No firms will enter this market.

True

After maximizing profits, what do the firm's costs equal?

The area of rectangle ABGH (correct)

The area of rectangle ADEH

The area of rectangle BDEG

The area of rectangle ACFH

After maximizing profits, what does the firm's revenue equal?

The area of rectangle BCFG

The area of rectangle ABGH

The area of rectangle ADEH (correct)

The area of rectangle BDEG

After maximizing profits, what do the firm's profits equal?

The area of rectangle BDEG Signup and view all the answers

The largest cattle rancher in a given region will be unable to have a __________ when sufficient numbers of smaller cattle ranchers provide sources of competition.

monopoly Signup and view all the answers

Which of the following is most unlikely to present a barrier to entry into a market?

Deregulation Signup and view all the answers

Deregulation occurs when a government eliminates or scales back rules relating to all but one of the following. Which one is it?

Natural monopoly Signup and view all the answers

Government regulations specify that inventors will maintain exclusive legal rights to their respective inventions for .

patent; a limited time Signup and view all the answers

The US government has registered _ on behalf of business firms to protect a particularly distinct element each has selected for its ability to aid consumers to easily .

800,000 trademarks; identify the source of goods Signup and view all the answers

The form of legal protection intended to prevent reproduction of original works is referred to as ______________ law.

copyright Signup and view all the answers

In the business world, a _________________ is recognized as a legally acceptable way for any business to keep knowledge of its particular methods of production from being known by competing firms.

trade secret Signup and view all the answers

Intellectual property law is a body of law that includes:

Copyright legislation, as well as all of the above Signup and view all the answers

A __________________ exists when the quantity demanded in the market is less than the quantity at the bottom of the long-run average cost curve.

natural monopoly Signup and view all the answers

The use of sharp, temporary price cuts as a form of _________________ would enable traditional US automakers to discourage new competition from smaller electric car manufacturers.

predatory pricing Signup and view all the answers

Which of the following is most likely to be a monopoly?

Local electricity distributor Signup and view all the answers

Which of the following will present the least amount of concern to a firm that has a monopoly over a particular industry?

The competitive actions of other business firms Signup and view all the answers

A firm that holds a monopoly position in the marketplace is:

A price maker Signup and view all the answers

Occasionally, _ may lead to pure monopoly; in other market conditions, they may limit competition _.

Barriers to entry; to a few oligopoly firms Signup and view all the answers

If the North American newsprint paper market has barriers to entry, then:

Entry will be blocked even if firms are earning high profits. Signup and view all the answers

A natural monopoly occurs when the quantity demanded is ________ the minimum quantity it takes to be at the bottom of the long-run average cost curve.

less than Signup and view all the answers

By 2007, US market deregulation has proven to be most toxic to the overall health of the US economy in the ________________________.

Banking sector Signup and view all the answers

If it was possible for one company to gain ownership control of all the uranium processing plants in the US, then:

That firm could set up barriers to entry to discourage competition. Signup and view all the answers

In the United States, a pharmaceutical company's exclusive patent rights last for:

20 years Signup and view all the answers

The US laws dealing with original works of authorship allow the US Copyright Office to enforce protection for all but one of the following. Which one is it?

Ancient Bible texts Signup and view all the answers

Copyright protection legislation provides protection for original works:

During the author's life plus 70 years Signup and view all the answers

Roughly speaking, patent law covers and law protects an author's original books.

original inventive creations; copyright Signup and view all the answers

A monopolist is able to maximize its profits by:

Producing output where MR = MC and charging a price along the demand curve. Signup and view all the answers

Which one of the following is the most accurate description of a monopolist?

A sole producer of a product for which good substitutes are lacking in a market with high barriers to entry Signup and view all the answers

When a natural monopoly exists in a given industry, the per-unit costs of production will be:

Lowest when a single firm generates the entire output of the industry. Signup and view all the answers

Following the assumption that firms maximize profits, how will the price and output policy of an unregulated monopolist compare with ideal market efficiency?

Output will be too small and its price too high. Signup and view all the answers

The slope of the demand curve for a monopoly firm is:

Downward sloping Signup and view all the answers

For a monopolistic firm, the demand for its product is:

Completely inelastic Signup and view all the answers

The marginal revenue curve for a monopolist ____________________ the market demand curve.

Always lies beneath Signup and view all the answers

For a pure monopoly to exist:

There is a single seller in a particular industry Signup and view all the answers

If monopolists are able to produce fewer goods and sell them at a higher price than they could under perfect competition, the result will be:

Abnormally high sustained profits. Signup and view all the answers

The two primary factors determining monopoly market power are the firm's:

Demand curve and its cost structure Signup and view all the answers

What qualities would ideally suit a monopolistic firm with regard to barriers to entry?

Sufficient strength to prevent or discourage potential competitors from entering the market Signup and view all the answers

In the event that Only1Corp. obtains control of all the natural gas producers in the US, it would most likely:

Raise prices, cut production, and realize positive economic profits. Signup and view all the answers

When J.K. Rowling exerts copyright ownership of her literary works, she creates a monopoly by restricting:

Entry into the market. Signup and view all the answers

Once I'MaPharmaCo. has received confirmation of the registration for its latest drug patent application, it will have created a monopoly for that product by restricting:

Entry into the market. Signup and view all the answers

When the demand for a good or service limits the quantity that can be sold to an output at which the firm experiences economies of scale:

The firm is a natural monopoly. Signup and view all the answers

When a firm pursues a predatory pricing strategy, it does so:

To maximize profits in the long run. Signup and view all the answers

If a firm holds a pure monopoly in the market and is able to sell 5 units of output at $4.00 per unit and 6 units of output at $3.90 per unit, it will produce and sell the sixth unit if its marginal cost is:

$3.40 or less Signup and view all the answers

If a firm holds a pure monopoly in the market and is able to sell 4 units of output at $2.00 per unit and 5 units of output at $1.75 per unit, it will produce and sell the fifth unit if its marginal cost is:

$0.75 or less Signup and view all the answers

__________________ law implies ownership over an idea or concept or image.

Intellectual property Signup and view all the answers

The typical pattern of costs for a monopoly can be analyzed by using:

All of the above Signup and view all the answers

The typical pattern of costs for a perfectly competitive firm can be analyzed by using:

All of the above Signup and view all the answers

Which of the following denotes the typical shape of the monopolist's total cost curve?

Total costs rise and grow steeper as output rises Signup and view all the answers

When a monopolist increases sales by one unit:

It loses some marginal revenue and all of the above. Signup and view all the answers

If a monopolist increases quantity by one unit, but sells the increased output at a slightly lower price:

Marginal revenue is affected by adding one additional unit sold at the new price. Signup and view all the answers

_ and ______ refer to the quantity and price at a point in time.

Productive; allocative efficiency Signup and view all the answers

The demand curve perceived by a perfectly competitive firm:

Is horizontal Signup and view all the answers

The total revenue curve for a monopolist will:

Start low, rise, and then decline. Signup and view all the answers

The figure below shows the demand curve and the long run average cost curve for an electric company. This market is a natural monopoly because:

The demand curve intersects the long run average cost curve at a point where the long run average cost curve is downward sloping Signup and view all the answers

Study Notes

Market Structures and Competition

A monopoly exists when a single seller dominates a market with high barriers to entry, leading to controlled prices and output levels.
Barriers to entry can include patent laws, technological advantages, and natural monopolies, while deregulation is less likely to present a barrier.
Monopolists are price makers, maximizing profits by producing where marginal revenue equals marginal cost and adjusting prices based on demand.

Intellectual Property Rights

Patents grant inventors exclusive rights to their creations for a limited time, typically 20 years in the U.S.
Trademarks (around 800,000 registered in the U.S.) protect brand identifiers, helping consumers recognize the source of goods.
Copyright law protects original works, lasting the creator's life plus 70 years, covering forms of expression like literature and music.

Types of Markets

Natural monopolies are characterized by lower average costs when produced by a single firm, resulting in minimal output that meets demand.
Monopolistically competitive markets have many sellers with differentiated products and lower barriers compared to pure monopolies.

Pricing Strategies

Predatory pricing involves temporarily lowering prices to eliminate competition, which can lead to higher long-term profits.
The demand curve for monopolistic firms is downward sloping, indicating that price and quantity demanded are inversely related as price changes.

Economic Implications

Firms in monopoly situations can achieve abnormally high sustained profits by restricting output and raising prices.
Unregulated monopolists produce less and charge more than would occur in competitive markets, leading to inefficiencies.
The government may regulate monopolies to improve market competition, especially in sectors like telecommunications and banking, where deregulation has had mixed outcomes.

Cost and Revenue Analysis

The total cost curve for monopolies rises and steepens as output increases, reflecting increasing marginal costs.
Revenue curves for monopolists start low, rise as sales increase, and eventually decline, often reflecting the diminishing returns when price cuts are required to increase sales.

Legal Definitions

Intellectual property laws encompass copyright, patents, and trademarks, which protect the creators' rights over their inventions and works.
The demand perceived by perfectly competitive firms is horizontal, signifying they are price takers in the market since they cannot influence the price due to numerous competitors.

Graphical Representations

Profit maximization for monopolist firms can be analyzed through graphical representation, where areas under demand and cost curves represent revenue, total costs, and profits visually.
Intersections of average cost curves and demand curves determine the output levels of a monopoly, illustrating efficient output in terms of market management.

Real-world Examples

Local electricity distributors often exemplify monopolistic markets due to high infrastructure costs and regulatory environments preventing new entrants.
Patent protections and trade secrets create competitive advantages, allowing firms to sustain monopolistic practices in their respective industries.

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Description

This quiz covers key concepts in market structures and competition, including monopolies, barriers to entry, and pricing strategies. It also explores intellectual property rights such as patents, trademarks, and copyrights. Test your understanding of these crucial economic principles.