Chapter 8--AP Economics

A lone seller who produces a unique product without close substitutes is a ____________________.

• monopolist

• consumer

• rent seeker

• lobbyist

Two conditions allow a single seller to become a monopolist. Those two conditions are that the firm must

• have something unique to sell

• have a way to prevent competitors from entering the market

• be able to segregate its consumers

• be able to estimate its demand curve

A city's electric company is able to gain monopoly power in its market due to

• control of an essential resource

• low barriers to entry

• a product with close substitutes

• good luck

Three natural barriers to entry are

• economies of scale

• problems in raising capital

• control of resources

• patents and copyright law

The best way to limit competition is to

• lobby for a government-created barrier

• control a resource that is essential in the production process

• charge a low price

• minimize cost

Raising capital to compete against an entrenched monopolist can be done only through private investors.

• true

• false

Answer explanation

The answer is false. Though one can raise capital through private investors, there are other ways one can raise capital. It is very difficult to raise capital to compete against an entrenched monopolist.

A natural monopoly exists when

• a single seller has lower costs than any competitor

• a firm owns a patent or copyright

• many sellers sell very similar goods at very similar prices

• a single seller has higher costs than any competitor

Which of the following is not an example of a government-created barrier to entry?

• rent seeking

• licensing

• patents and copyright law

• government regulations

Patents and copyright law

• are natural barriers

• assure inventors that no one will sell their ideas

• create more competition

• mean more varieties of goods and services at different price levels

Both monopolies and competitive firms try to maximize profits.

• True

• False