Reading 19: Monopoly-LOS e 习题精选 珍惜, 2011, class

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Session 5: Economics: Market Structure and Macroeconomic Analysis
Reading 19: Monopoly

LOS e: Explain the potential gains from monopoly and the regulation of a natural monopoly.

 

 

Which of the following is least likely to be considered a reason for the existence of a natural monopoly? Firms:

A) that can maximize profit when price equals marginal cost.

B) that have significant economies of scope.

C) for which average total cost decreases over the entire range of industry demand.

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Profit maximization occurs when price equals marginal cost in a perfectly competitive industry, not a monopoly. A natural monopoly exists when economies of scale or scope are so significant that total industry production should be produced by only one firm. In this case, average total cost declines over the entire range of demand.

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Which of the following is least likely to be considered a reason why regulation of monopolies is not effective?

A) Regulation reduces the incentive for firms to reduce costs.

B) Regulators do not know the firm’s cost structure.

C) Regulation shifts industry demand and increases prices.

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Regulation is not associated with a shift in industry demand.

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Regulations are frequently implemented that attempt to deal with markets with high barriers to entry. Which statement is least likely to be a reason why they often fail?

A) Due to regulation, a firm has little incentive to control costs as the costs can be shifted to consumers via a price increase.

B) Regulators prevent monopolists from making a profit.

C) An existing firm in the industry is able to influence the regulatory board.

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Regulators do not seek to prevent monopolists from making a profit. Instead using average cost pricing, regulators will try to prevent monopolists from making a zero economic profit and ensure the monopolist a normal profit. Both remaining choices are reasons why regulations can fail.

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Natural monopolies exist because they can produce at lower costs with greater output, which means there are economies of scale. Which of the following industries is typically a natural monopoly?

A) Utilities.

B) Technology.

C) Oil.

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With a natural monopoly average costs of production will be lowest when a single large firm produces the entire output demanded such as a utility.

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Which of the following is least likely to be considered a reason for the existence of a natural monopoly?

A) Firms that have significant economies of scope.

B) Firms that can maximize profit when price equals marginal cost.

C) Firms for which average total cost decreases over the entire range of industry demand.

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Profit maximization occurs when price equals marginal cost in a perfectly competitive industry, not a monopoly. A natural monopoly exists when economies of scale or scope are so significant that total industry production should be produced by only one firm. In this case, average total cost declines over the entire range of demand.

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Consider the following statements:

Statement 1: “A natural monopoly exists when economies of scale are so pronounced that all of an industry’s demand should be supplied by one firm.”

Statement 2: “Monopoly is characterized by a single seller of a distinct product for which no good substitutes exist.”

Statement 3: “Average cost pricing is a form of regulation that is intended to force monopolists to reduce output to the point where the monopolist’s average total cost curve intersects its marginal cost curve.”

Which of the following best describes the accuracy of these statements?

Statement 1

Statement 2

Statement 3

A) Correct Incorrect Correct

B) Correct Correct Incorrect

C) Incorrect Correct Incorrect

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Statement 3 is incorrect because average cost pricing attempts to force the monopolist to produce where the average total cost curve intersects the demand curve and to charge a price equal to ATC.

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Which of the following describes the regulatory practice of setting prices at a level where the monopoly firm’s average total cost curve intersects the demand curve?

A) Marginal cost pricing.

B) Average cost pricing.

C) Cost-of-service pricing.

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Under average cost pricing, regulators attempt to force monopolies to reduce prices to where a firm’s average total cost curve intersects the market demand curve. This will increase output and decrease price, increase allocative efficiency, and ensure zero economic profit.

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In a natural monopoly:

A) the average total cost of production continually declines with increased output.

B) the price charged by a monopolist is determined by the intersection of the demand curve with the marginal cost curve.

C) one firm controls all natural resources.

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A monopoly situation in which the average total cost of production continually declines with increased output is called a natural monopoly.

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Which of the following statements regarding monopolies is least accurate?

A) Monopolists will try to get favorable treatment from the government called rent seeking.

B) Inefficient producers are able to survive.

C) Due to the law of diminishing returns, natural monopolies exhibit an upward sloping average total cost curve.

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Natural monopolies have economies of scale that are so pronounced their average total cost curve is downward sloping in the region of relevant market demand.