Microeconomics Monopoly Quiz
48 Questions
0 Views

Choose a study mode

Play Quiz
Study Flashcards
Spaced Repetition
Chat to lesson

Podcast

Play an AI-generated podcast conversation about this lesson

Questions and Answers

What is the maximum duration of a pharmaceutical patent?

  • 20 years (correct)
  • 15 years
  • 25 years
  • 10 years

    • What typically happens to drug prices when they go off patent?

  • Generic equivalents appear quickly (correct)
  • Prices increase significantly
  • FDA approval is no longer required
  • Pharmaceutical companies continue to hold monopolies

    • What was the Ansari X Prize awarded for?

  • Developing a new video game
  • Innovating lightbulb technology
  • Creating a manned rocket (correct)
  • Improving drug research

    • What is a common method to incentivize research and development mentioned in the content?

    <p>Prizes</p> Signup and view all the answers

    Which of the following is true regarding the costs of pharmaceuticals and video games?

    <p>Both have high development costs and low marginal costs</p> Signup and view all the answers

    What impact does reducing prices on pharmaceuticals or video games have according to the content?

    <p>It reduces the incentive to research and develop new products</p> Signup and view all the answers

    How much did Netflix offer as a prize for improving its movie recommendation system?

    <p>$1 million</p> Signup and view all the answers

    What is the typical development cost range for video games mentioned in the content?

    <p>$7 million to $10 million</p> Signup and view all the answers

    What happens to consumer surplus when a market shifts from competition to monopoly?

    <p>It decreases.</p> Signup and view all the answers

    What is indicated by the area labeled as 'deadweight loss' in a monopoly?

    <p>Loss of total surplus due to reduced quantity.</p> Signup and view all the answers

    How does the price under monopoly compare to the competitive price?

    <p>It is higher than the competitive price.</p> Signup and view all the answers

    What is the monopolist's marginal cost equal to at the profit-maximizing quantity?

    <p>Average cost.</p> Signup and view all the answers

    What is the primary reason monopolies do not maximize total surplus?

    <p>They restrict production to increase prices.</p> Signup and view all the answers

    In a competitive market, how do prices generally relate to marginal cost?

    <p>Prices are equal to marginal cost.</p> Signup and view all the answers

    What term refers to the extra profit that monopolists earn due to reduced competition?

    <p>Producer surplus.</p> Signup and view all the answers

    What would likely occur if a monopoly were to perfectly price discriminate?

    <p>Deadweight loss would be eliminated.</p> Signup and view all the answers

    What is emphasized in modern theories of economic growth regarding monopoly?

    <p>It can increase innovation.</p> Signup and view all the answers

    What role do patent laws play according to Douglass North?

    <p>They were essential for the consistent development of new techniques.</p> Signup and view all the answers

    What is a consequence of not having systematic property rights in innovation mentioned in the content?

    <p>A slow pace of technological change.</p> Signup and view all the answers

    What is the potential benefit of patent buyouts as proposed by economist Michael Kremer?

    <p>They eliminate the deadweight loss while maintaining innovation incentives.</p> Signup and view all the answers

    How does the trade-off between lower prices and future game innovation relate to economic principles?

    <p>It demonstrates a balance between consumer satisfaction and innovation.</p> Signup and view all the answers

    What does the green profit rectangle in Figure 13.3 represent?

    <p>The profit value of the patent to the owner.</p> Signup and view all the answers

    Which statement best summarizes the historical development of technological innovations?

    <p>Incentives for innovation have historically occurred only sporadically.</p> Signup and view all the answers

    What is a significant consequence of copying innovations at no cost mentioned in the content?

    <p>It discourages innovation by reducing rewards for inventors.</p> Signup and view all the answers

    What is a significant consequence of a monopolized economy?

    <p>Rise in poverty and stagnation</p> Signup and view all the answers

    Why are business leaders in the United States viewed positively compared to political leaders in Algeria?

    <p>U.S. competitive markets channel self-interest towards social prosperity</p> Signup and view all the answers

    Which option describes a potential benefit of monopolies in the pharmaceutical industry?

    <p>Incentives for research and development</p> Signup and view all the answers

    What could be a consequence of enforcing strong patent protection on drug prices?

    <p>Continued high prices for medication</p> Signup and view all the answers

    How much does it cost, on average, to research and develop a new drug in the United States?

    <p>$1 billion</p> Signup and view all the answers

    What is a common policy among some countries to control pharmaceutical prices?

    <p>Controlling pharmaceutical prices</p> Signup and view all the answers

    What is the effect of competition on pharmaceutical prices, as illustrated by GlaxoSmithKline's pricing strategy?

    <p>Competition helps lower prices</p> Signup and view all the answers

    What myth about business leaders in the U.S. is dispelled in the discussion of monopolies?

    <p>They always lead to positive outcomes</p> Signup and view all the answers

    What was the average price of electricity per megawatt hour (MWh) in April 2000?

    <p>$26</p> Signup and view all the answers

    What peak price did electricity reach in December 2000?

    <p>$3,900</p> Signup and view all the answers

    Which factor contributed to the increased demand for electricity in California during the summer of 2000?

    <p>Hot weather</p> Signup and view all the answers

    What caused the supply of hydroelectric power to fall by approximately 20%?

    <p>Low snowfall</p> Signup and view all the answers

    What event affected more than 1 million Californians due to electricity supply issues?

    <p>Blackouts</p> Signup and view all the answers

    How did generators of electricity exploit market power when demand was high?

    <p>By raising prices significantly</p> Signup and view all the answers

    What type of demand did each generator face in 1999 due to abundant supply?

    <p>Elastic demand</p> Signup and view all the answers

    What problem can occur if demand and supply of electricity are out of equilibrium?

    <p>Catastrophic blackouts</p> Signup and view all the answers

    What does a monopolist's price typically exceed?

    <p>Marginal cost</p> Signup and view all the answers

    Which aspect is NOT mentioned as a trade-off involved with monopolies?

    <p>Market entry barriers</p> Signup and view all the answers

    How does a natural monopoly typically relate to economies of scale?

    <p>It can lead to both deadweight loss and economies of scale.</p> Signup and view all the answers

    What was one outcome of regulating cable TV prices?

    <p>Lower prices but low quality</p> Signup and view all the answers

    What can be a consequence of having patent monopolies, such as on Combivir?

    <p>Trade-off between deadweight loss and innovation</p> Signup and view all the answers

    What effect did deregulation have on cable television rates?

    <p>Consumers flocked to cable even as rates rose</p> Signup and view all the answers

    What is a potential negative consequence of electricity deregulation mentioned?

    <p>Market power held by firms affecting consumers</p> Signup and view all the answers

    Which factor influences the markup of price over marginal cost in monopoly theory?

    <p>Inelasticity of demand</p> Signup and view all the answers

    Study Notes

    Monopoly

    • Definition: A firm with market power, able to raise prices above marginal cost without fear of new competitors entering the market.

    Market Power

    • Source: Patents, government regulations, economies of scale, exclusive access to an input, and technological innovation can all lead to market power.

    Profit Maximization

    • Principle: Produce until marginal revenue (MR) equals marginal cost (MC).
    • Considerations: A firm with substantial market share will see its output significantly impact market price, so MR will be less than price.

    Elasticity of Demand

    • Inelastic demand: The more inelastic the demand curve, the greater the monopolist's ability to raise price above marginal cost. This is particularly true when there are few substitutes for the product (e.g., life-saving medication).

    Costs of Monopoly

    • Deadweight loss: Loss of total surplus because less output is produced by a monopolist than a competitive industry—some consumers are excluded from the market, though they would pay more than the marginal cost of production.
    • Corruption: In some cases, monopolies are created or maintained through corruption. A firm or controlling party may not be producing at a competitive level due to political or similar reasons.

    Economies of Scale

    • Natural monopolies: When a single firm can serve the entire market at lower cost than multiple firms, this is a natural monopoly. Examples are water distribution systems, electricity grids, and transportation networks.

    Regulation

    • Government intervention: Governments may regulate monopolies to control price gouging and ensure sufficient output. Price regulation at a level below the profit-maximizing price may increase output. But regulation can reduce incentives for innovative work.

    Case Study: Pharmaceuticals

    • Patents and pricing: The high costs of research and development (R&D) for new pharmaceuticals are often a justification for the high prices and temporary monopolies granted through patents.
    • Incentives for R&D: The ability for a pharmaceutical company to maintain a positive markup above production costs is an incentive for continuing the expensive process of developing new drugs.
    • Role of government: Regulations, such as patent protections, can encourage or dampen innovation in the pharmaceuticals space.

    Case Study: Cable TV

    • Deregulation and Price: Deregulation of cable TV led to increased prices but also led to a broader array of channels. Customers benefitted, but this example illustrates the complexities of regulating or deregulating monopolies.

    Case Study: Electricity

    • Government regulation: Government oversight of electricity generation, transmission, and distribution has been a common practice. In the 1990s-2000s California's deregulation led to significant price increases followed by system instability.
    • Economies of scale and price: The cost curve of a single producer supplying a city with electricity may be significantly lower compared to that for many producers using smaller plants. Even in a deregulated market, supply and demand issues are an important consideration.

    Studying That Suits You

    Use AI to generate personalized quizzes and flashcards to suit your learning preferences.

    Quiz Team

    Related Documents

    Monopoly - Chapter 13 - Microeconomics PDF

    Description

    Test your knowledge on monopolies, market power, and profit maximization. This quiz covers key concepts including elasticity of demand and the costs associated with monopoly pricing. Ideal for students studying microeconomics.

    More Like This

    Use Quizgecko on...
    Browser
    Open
    Browser
    Browser