10a - ARE BUSINESSES EFFICIENT?
Monopolies in the Short Run
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10a
Monopoly
•Characteristics and Examples
•Short Run Equilibrium
10a Must Know / Outcomes:
• Define and understand the terms and concepts listed at the end of
the chapter
• List the five characteristics of pure monopoly.
• Explain the difference between a "pure" monopoly and a "near"
monopoly.
• List and give examples of the four barriers to entry.
• Describe the demand curve facing a pure monopoly and how it differs
from that facing a firm in a purely competitive market.
• Compute marginal revenue when given a monopoly demand
schedule.
• Explain why the marginal revenue is equal to the price in pure
competition but not in monopoly.
• Determine the price and output level the monopoly will choose given
demand and cost information in both table and graphic form.
1. Which is NOT a characteristic of
monopolies?
1.
2.
3.
4.
5.
6.
Single firm
A lot of control over price
Mutual interdependence
Unique product
Blocked entry
Public relations non-price competition
1. Which is NOT a characteristic of
monopolies?
1.
2.
3.
4.
5.
6.
Single firm
A lot of control over price
Mutual interdependence
Unique product
Blocked entry
Public relations non-price competition
2. Which of the following is a good
example of a monopoly?
1.
2.
3.
4.
A fast-food restaurant
A soft drink company
A local electric company
A construction firm
2. Which of the following is a good
example of a monopoly?
1.
2.
3.
4.
A fast-food restaurant
A soft drink company
A local electric company
A construction firm
Examples of Monopolies
1.
Public utilities: gas, electric, water, cable TV, and local telephone service
companies, are often pure monopolies.
2.
Central Microprocessors (Intel), First Data Resources (Western Union),
Wham-o (Frisbees), Brannock Device Company (shoe sizing devices), and
the DeBeers diamond syndicate are examples of "near" monopolies.
(See Last Word.)
3.
4.
5.
Manufacturing monopolies are virtually nonexistent in nationwide U.S.
manufacturing industries.
Professional sports leagues grant team monopolies to cities.
Monopolies may be geographic. A small town may have only one airline,
bank, etc.
Why Study Monopolies?
• because they really do exist
• because most industries are a
combination of pure competition
and pure monopoly
o monopolistic competition
o oligopoly
3. Which of the following is NOT a
barrier to entry?
1. Economies of scale / costs
2. Legal barriers
3. Ownership of essential raw
material
4. Pricing and other strategies
5. Price discrimination
3. Which of the following is NOT a
barrier to entry?
1. Economies of scale / costs
2. Legal barriers
3. Ownership of essential raw
material
4. Pricing and other strategies
5. Price discrimination
Barriers to Entry
1. Economies of Scale
2. Legal Barriers
a) Patents
b) licenses
3. Ownership or control of essential raw
materials
4. Pricing and other Strategic Barriers
Economies of Scale / Cost Barrier / Natural Monopoly
Natural Monopoly
D crosses ATC when ATC is downward sloping
4. Why are barriers important?:
1.
2.
3.
4.
They determine long run profits
They allow for price discrimination
They permit product differentiation
They create mutual interdependence
4. Why are barriers important?
1.
2.
3.
4.
They determine long run profits
They allow for price discrimination
They permit product differentiation
They create mutual interdependence
5. The demand curve facing a monopoly
is:
1.
2.
3.
4.
Perfectly elastic
Relatively elastic
Equal to its MR
Downward sloping
5. The demand curve facing a monopoly
is:
1.
2.
3.
4.
Perfectly elastic
Relatively elastic
Equal to its MR
Downward sloping
6. A monopolist can sell 1 widget for $5. In
order to sell 2 widgets, the firm must lower
the price to $4. What is the MR of the
second widget?
1.
2.
3.
4.
5.
MR = $1
MR = $2
MR = $3
MR = $4
MR = $5
6. A monopolist can sell 1 widget for $5. In
order to sell 2 widgets, the firm must lower
the price to $4. What is the MR of the
second widget?
1.
2.
3.
4.
5.
MR = $1
MR = $2
MR = $3
MR = $4
MR = $5
7. The MR is less than the price for
imperfectly competitive firms because:
1. Demand is elastic
2. To sell more they must lower the price of all
that they sell
3. Entry is blocked
4. They sell unique products
7. The MR is less than the price for
imperfectly competitive firms because:
1. Demand is elastic
2. To sell more they must lower the price of all
that they sell
3. Entry is blocked
4. They sell unique products
8. Which is drawn correctly?
1. A
2. B
3. C
8. Which is drawn correctly?
1. A
2. B
3. C
What is wrong this graph?
MONOPOLY DEMAND:
• market demandtherefore it is
downsloping
• P>MR
• Price maker
• Price will be set in
the elastic part of
the demand curve
9. What Q would
this monopoly
produce?
1.
2.
3.
4.
5.
100
125
150
175
200
9. What Q would
this monopoly
produce?
1.
2.
3.
4.
5.
100
125
150
175
200
10. What price
would be
charged?
1.
2.
3.
4.
5.
$4
$6
$7
$8
$9
10. What price
would be
charged?
1.
2.
3.
4.
5.
$4
$6
$7
$8
$9
11. What would
the profits be?
1.
2.
3.
4.
5.
$1200
$900
$600
$400
$300
11. What would
the profits be?
1.
2.
3.
4.
5.
$1200
$900
$600
$400
$300
12. What are
the profits or
losses?
1.
2.
3.
4.
0AEI
0BFI
BAEF
CBFG
12. What are
the profits or
losses?
1.
2.
3.
4.
0AEI
0BFI
BAEF
CBFG