JonnyKay

Which one of the following is most likely to contribute to the presence of monopoly in an industry?

A) Legal barriers to entry into the industry.

B) Inefficiency attributable to bureaucratic decision-making procedures in the industry.

C) Diseconomies of scale.

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An example of an industry with legal barriers is utility firms, which are granted exclusive rights to supply electricity in certain areas.

JonnyKay

Consider the following statements:
Statement 1: “The sum of consumer and producer surpluses is maximized under both monopoly and perfect competition.”
Statement 2: “All else being equal, a monopolist that practices price discrimination will be more allocatively efficient than a single-price monopolist.”
With respect to these statements:

A) both of these statements are accurate.

B) neither of these statements is accurate.

C) only one of these statements is accurate.

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Statement 1 is incorrect because the sum of consumer and producer surpluses is maximized under perfect competition when marginal benefit and marginal cost are equal, or equivalently, where the marginal cost curve intersects the demand curve. Monopolies, however, produce a quantity that is less than the quantity where marginal cost equals marginal benefit, so the sum of producer and consumer surpluses is not maximized.

JonnyKay

Which of the following is least likely a barrier to entry?

A) Few sellers.

B) Economies of scale.

C) Government licensing and legal barriers.

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Few sellers are a characteristic, not a barrier, of a price-searcher market where there are high barriers to entry. Other barriers are patents or exclusive rights of production.

JonnyKay

Which of the following situations is least likely to lead to high barriers to entry and monopoly supply?

A) Natural resources are spread among many firms.

B) Economies of scale are present.

C) Governmental licensing and regulations are present.

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All cases except wide distribution of a natural resource facilitate a monopoly. If natural resource ownership is concentrated in one firm a monopoly would result.

JonnyKay

In a natural monopoly:

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

B) one firm controls all natural resources.

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

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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.

JonnyKay

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.

JonnyKay

Which of the following is least likely a barrier to entry?

A) Allocative Efficiency.

B) Patents.

C) Economies of Scale.

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The other barriers to entry are government licensing and legal barriers such as utilities are given the exclusive right to supply electricity in certain areas.

JonnyKay

An oligopolistic firm:

A) will consider the potential response of its rivals when making business decisions.

B) is likely to be formed when the minimum-cost output is only a small portion of the market output.

C) will seldom use product quality as a competitive weapon.

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Oligopolists are highly dependent upon the actions of their rivals when making business decisions. Price determination in the auto industry is a good example. Automakers tend to play "follow the leader" and announce price increases in close synchronization. They are not working explicitly together, but the actions of one producer have a large impact on the others when products are differentiated, quality may be a competitive strategy.

JonnyKay

Firms in perfectly competitive markets and firms operating in a market characterized by monopolistic competition have several things in common. Which of the following is least likely one of them? Both:

A) operate in markets that have low or no barriers to entry.

B) face perfectly elastic demand curves.

C) maximize economic profit.

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The only item listed in the question that monopolistic competition and pure competition do not have in common is a perfectly elastic demand curve. Under pure competition, producers face a perfectly elastic demand curve, whereas price searchers face downward sloping demand curves.

JonnyKay

Characteristics of an oligopoly least likely include:

A) interdependence among competitors.

B) significant barriers to entry.

C) identical products.

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In an oligopoly, a small number of producers sell products that can be similar or differentiated. An oligopoly typically features significant barriers to entry including economies of scale. Pricing and output decisions by each firm directly influence the decisions of competing firms.