Understanding Monopolies: A Deep Dive

What is considered a monopoly in a legal sense?

• A firm with at least 25% market share

• A firm with at least 50% market share

• A firm with no competitors

• Any firm with unique products

What does the term 'monopoly power' refer to?

• The ability to set prices without losing customers

• The capacity to innovate without constraints

• The power to eliminate all competition

• The influence over regulatory bodies

What allows monopolies to maintain supernormal profits over time?

• Low barriers to entry

• Perfect information

• Competitive pricing

• High barriers to entry and exit

What characteristic makes a monopoly a price maker?

• Low barriers to entry

• Unique products

• Perfect information

• Multiple firms in the industry

What role do barriers to entry play in a monopoly market?

• They encourage new firms to enter the market

• They decrease the monopolist's market share over time

• They prevent new firms from entering, maintaining high profits for the monopolist

• They have no significant impact on market structure

What does the presence of high barriers to entry and exit imply about a monopoly's market structure?

• It is highly competitive

• It allows for easy entry of new firms

• It protects the monopolist's market position and profits

• It encourages price wars

At what point do monopolists produce to maximize profits?

• Where average revenue equals marginal cost

• Where marginal cost equals marginal revenue

• Where average cost is at its lowest

• Where demand is highest

How does a monopolist's marginal revenue curve compare to its demand curve?

• It is horizontal

• It is more steep

• It is identical

• It is less steep

How does a monopoly's profit-maximizing output level compare to that of a competitive firm?

• It is the same as competitive firms

• It varies depending on the product

• It is lower because monopolies restrict output

• It is higher because monopolies produce more

Why are monopolies considered allocatively inefficient?

• They price at marginal cost

• They produce more than the market demands

• They have no barriers to entry

• They produce less and charge more than competitive firms