Micro Chapter 12

"No firm is completely sheltered from rivals; all firms compete for consumer dollars. If that is so, then pure monopoly does not exist." A monopoly is more likely to persist if the cross price elasticity of demand is

negative and greater than 1.
positive and greater than 1.
negative and less than 1.
positive and less than 1.

positive and less than 1.

Which of the following is not a major barrier to entry into an industry?

Unfair competition
Diminishing marginal returns
Patents
Economies of scale

Diminishing marginal returns

Which of the following is true?

Unfair competition is a barrier with no social justification.
Natural monopolies occur when an industry makes a strong lobbying effort.
Control of essential resources is a barrier to entry that is now illegal.

Unfair competition is a barrier with no social justification.

The demand curve faced by a purely monopolistic seller

is perfectly elastic, whereas that facing the purely competitive firm is perfectly inelastic.
is perfectly inelastic, whereas that facing the purely competitive firm is perfectly elastic.
is downward sloping, whereas that facing the purely competitive firm is perfectly elastic.
is downward sloping, whereas that facing the purely competitive firm is perfectly inelastic.

is downward sloping, whereas that facing the purely competitive firm is perfectly elastic.

The demand curve facing a

-purely competitive firm is downsloping because the purely competitive firm is faced by a normal downward sloping industry demand curve.
-pure monopolist is downsloping because the firm’s supply is so small a part of the total industry supply that it cannot affect the price.
-pure monopolist is perfectly elastic because the pure monopolist may sell all that it wishes at the equilibrium price.
-purely competitive firm is perfectly elastic because the purely competitive firm may sell all that it wishes at the equilibrium price

purely competitive firm is perfectly elastic because the purely competitive firm may sell all that it wishes at the equilibrium price

The pure monopolist’s demand curve is not

-perfectly inelastic because MR < MC when demand is inelastic, so the price would be falling.
-perfectly inelastic because MR is negative when demand is inelastic, so MR = MC < 0.
-perfectly elastic because the firm will still have some competitors even if they are not close.
-perfectly elastic because MR is negative when demand is elastic, so MR = MC < 0.

perfectly inelastic because MR is negative when demand is inelastic, so MR = MC < 0.

Assume that a pure monopolist and a purely competitive firm have the same unit costs. In this case, resources will be allocated

-inefficiently because the monopolist does not produce at the point of minimum ATC and does not equate price and MC.
-inefficiently because the monopolist does not produce in the elastic range of the demand curve.
-efficiently because the pure competitor produces at the point of minimum ATC and equates price and MC.
-efficiently because the pure competitor earns only a normal profit.

inefficiently because the monopolist does not produce at the point of minimum ATC and does not equate price and MC.

Even though both monopolists and competitive firms follow the MC = MR rule in maximizing profits, there are differences in the economic outcomes because the

-monopolist will try to buy the competitor.
-monopolist can charge any price it wants to.
-pure competitor is small with no market power.
-pure competitor cannot make any economic profit.

pure competitor is small with no market power.

The costs of a purely competitive firm and a monopoly could be different because

-the competitive firm has a lower price.
-the competitive firm is unregulated.
-the monopoly controls the input prices.
-the monopoly might experience economies of scale not available to the competitive firm.

the monopoly might experience economies of scale not available to the competitive firm.

Assume a monopolistic publisher agrees to pay an author 15 percent of the total revenue from text sales.

Which of the following statements is true?

-The author would prefer a lower price than the publisher.
-The author would prefer the same price as the publisher.
-The author would prefer a higher price than the publisher.
-The preferences cannot be determined from the information given.

The author would prefer a lower price than the publisher

U.S. pharmaceutical companies charge different prices for prescription drugs to buyers in different nations, depending on elasticity of demand and government-imposed price ceilings. U.S. pharmaceutical companies, for profit reasons, oppose laws allowing reimportation of drugs to the United States because reimportation would

-make the elasticities of demand converge.
-occur at a higher price.
-make it much more difficult to maintain the differing prices.
-result in changes in cost that would lower the profit level.

make it much more difficult to maintain the differing prices.

It has been proposed that natural monopolists should be allowed to determine their profit-maximizing outputs and prices and then government should tax their profits away and distribute them to consumers in proportion to their purchases from the monopoly. This proposal

-does not consider that the output of the natural monopolist would still be at the suboptimal level where P &gt; MC.
-does not consider that the output of the natural monopolist would still be at the suboptimal level where P &lt; MC.
-is more socially desirable than equating the price to the average total cost.
-has the same outcome as fair-return pricing.

does not consider that the output of the natural monopolist would still be at the suboptimal level where P > MC.

The socially optimal price (P = MC) is socially optimal because:

-It yields a normal profit.
-It reduces the monopolist’s profit.
-It achieves allocative efficiency.
-It minimizes ATC.

It achieves allocative efficiency.