Chapter 12

Pure monopoly refers to

• any market in which the demand curve for the firm is downsloping.

• a standardized product being produced by many firms.

• a single firm producing a product for which there are no close substitutes.

• a large number of firms producing a differentiated product.

Which of the following is correct?

• Both purely competitive and monopolistic firms are "price takers."

• Both purely competitive and monopolistic firms are "price makers."

• A purely competitive firm is a "price taker," while a monopolist is a "price maker."

• A purely competitive firm is a "price maker," while a monopolist is a "price taker."

Which of the following best approximates a pure monopoly?

• the foreign exchange market

• the Kansas City wheat market

• the only grocery store in a small isolated town

• the soft drink market

Which of the following is not a barrier to entry?

• patents

• X-inefficiency

• economies of scale

• ownership of essential resources

Barriers to entering an industry

• encourage allocative efficiency.

• encourage productive efficiency.

• are the basis for monopoly.

• apply only to purely monopolistic industries.

A natural monopoly occurs when

• long-run average costs decline continuously through the range of demand.

• a firm owns or controls some resource essential to production.

• long-run average costs rise continuously as output is increased.

• economies of scale are obtained at relatively low levels of output.

What do economies of scale, the ownership of essential raw materials, and patents have in common?

• They must all be present before price discrimination can be practiced.

• They are all barriers to entry.

• They all help explain why a monopolist's demand and marginal revenue curves coincide.

• They all help explain why the long-run average cost curve is U-shaped.

The nondiscriminating pure monopolist's demand curve

• is the industry demand curve.

• shows a direct or positive relationship between price and quantity demanded.

• tends to be inelastic at high prices and elastic at low prices.

• is identical to its marginal revenue curve.

In the accompanying diagram, if price is reduced from P₁ to P₂, total revenue will

• increase by A − C.

• increase by C − A.

• decrease by A − C.

• decrease by C − A.

In the accompanying diagram, the quantitative difference between areas A and C for reducing the price from P₁ to P₂ measures

• marginal cost.

• marginal revenue.

• monopoly price.

• a welfare or efficiency loss.