44 Questions
What is the meaning of a monopolist?
A firm that is the only producer of a good with no close substitutes
What is market power in the context of a monopolist?
The ability of a firm to raise prices
What is essential for monopolies to generate profit in the short and long run?
Barriers to entry
Which factor can serve as a barrier to entry for monopolies?
Control of natural resources or inputs
What did De Beers do to manipulate the global rough diamond trade?
Bought diamonds produced by others and stockpiled them to restrict supply
What led to De Beers' decreased market share in global rough diamond trade?
Losing control of many mines and agreeing to stop monopolizing and fixing prices in the US diamond market
What is an example of a government-made barrier that can act as a barrier to entry for monopolies?
Patents and copyrights
How did De Beers manipulate the global rough diamond trade?
By controlling many mines and restricting supply through stockpiling diamonds produced by others
What can lead to decreased market share for a monopoly in an industry?
Losing control of key resources or production facilities
What is an example of an acquisition-related barrier that can act as a barrier to entry for monopolies?
Mergers with potential competitors
How can technological superiority serve as a barrier to entry for monopolies?
By limiting access to advanced technologies and innovations
What is the condition for profit maximization for a monopolist firm?
$MR = MC$
What is the characteristic of a natural monopoly?
Large cost advantage due to increasing returns to scale
What is the effect of an increase in production by a monopolist on revenue?
Quantity effect and price effect
What is the primary reason for government policy intervention to prevent monopoly behavior?
To avoid deadweight loss caused by a monopoly
What is perfect price discrimination?
Charging each customer the maximum price they are willing to pay
What characterizes the market for pharmaceutical drugs after patent expiration?
Becomes competitive and prices fall
What is one of the common techniques for price discrimination used by firms?
Advance purchase restrictions
What policy response can be implemented to address natural monopoly issues?
Nationalisation of industry (public ownership)
What happens to consumer surplus when perfect price discrimination is employed?
There is zero consumer surplus as it is captured by the monopolist as profit.
In what scenario does a firm establish itself as a monopolist due to technological superiority?
Consistent technological advantage over potential competitors.
What causes deadweight loss in a monopoly situation?
Monopoly raising prices and lowering quantity supplied.
What characterizes external growth/integration in relation to monopolies?
Acquisition, merger or takeover leading to increased industry concentration.
Which of the following is not a form of barrier to entry for monopolies?
Technological inferiority
What factor contributed to De Beers' decreased market share in the global rough diamond trade?
Loss of control of many mines
Which action led to De Beers agreeing to stop monopolizing and fixing prices in the US diamond market in 2013?
Government intervention
Which factor can act as a government-made barrier to entry for monopolies?
$\text{Patents and copyrights}$
What is the primary reason for government policy intervention to prevent monopoly behavior?
$\text{To promote competition and consumer welfare}$
$\text{What is an example of a barrier to entry for monopolies that can take the form of an acquisition or merger?}$
$\text{Acquisitions and mergers}$
$\text{What characteristic can serve as a barrier to entry for monopolies by creating market power?}$
$\text{Network externality}$
$\text{What is an example of a historical company that controlled global rough diamond trade through manipulation?}$
$\text{De Beers}$
$\text{What is the primary reason why profits will persist for monopolies in the long run?}$
$\text{Competition from new firms will be restricted by barriers to entry}$
$\text{What is an example of a barrier to entry that can be created by controlling natural resources or inputs? }$
$\text{Control of natural resources or inputs}$
What is the primary condition for profit maximization for a monopolist firm?
Producing the quantity at which $MR = MC$
What characterizes perfect price discrimination by a monopolist?
Capturing all consumer surplus as profit
What is the effect of an increase in production by a monopolist on revenue?
Quantity effect increases total revenue, while price effect decreases total revenue
What is one of the common techniques for price discrimination used by firms?
Volume discounts
What characterizes external growth/integration in relation to monopolies?
Acquisition, merger or takeover leading to industry concentration
What causes deadweight loss in a monopoly situation?
Monopoly raising prices and lowering Q, leading to decreased consumer surplus and deadweight loss
How does a firm establish itself as a monopolist due to technological superiority?
By maintaining a consistent technological advantage over potential competitors
What is an example of a government-created barrier that can act as a barrier to entry for monopolies?
Patent laws giving temporary monopoly on sale of invention
What is market power in the context of a monopolist?
Ability to influence market price by changing quantity supplied
What is essential for monopolies to generate profit in the short and long run?
Producing where $MR = MC$ and setting price using demand curve
What policy response can be implemented to address natural monopoly issues?
Nationalisation of industry (public ownership)
Learn about the different types of market structures such as perfect competition, monopoly, oligopoly, and monopolistic competition. Understand the meaning of monopoly and the concept of market power, as well as the reasons for the existence of monopolies and the barriers to entry that allow them to protect their profits.
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