Ap Micro Monopoly Test

Natural Monopolies

A type of monopoly that exists as a result of the high fixed costs or startup costs of operating a business in a specific industry. Additionally, natural monopolies can arise in industries that require unique raw materials, technology or other similar factors to operate.

Natural Monopoly Example

The utilities industry, because the costs of establishing a means to produce power and supply it to each household can be very large.

Marginal Revenue

The increase in revenue that results from the sale of one additional unit of output. While marginal revenue can remain constant over a certain level of output, it follows the law of diminishing returns and will eventually slow down, as the output level increases.

A firm that holds a monopoly position in the market place is

price maker

monopolist is able to maximize its profits by

producing output where MR = MC; and charging a price where optimal quantity intersects the demand curve.

The slope of the demand curve for a monopoly firm is

downward sloping

For a monopolist, the marginal revenue curve ____________________ the demand curve.

lies beneath

Entry of new firms is most difficult in which kind of industry structure?

Pure monopoly

Which of the following is true of a monopolistically competitive firm in long-run equilibrium?

Marginal revenue is equal to marginal cost, and price is equal to average total cost

Generally, monopolies are considered inefficient because they

Lead to an under allocation of resources in the affected market and produces too little output and sets a price above marginal cost

A monopoly is different from a perfectly competitive firm in that a monopoly

has a marginal revenue curve that lies below its demand curve

A single-price monopolist's marginal revenue is

less than its price

Which of the following is true if a monopolist's marginal revenue is negative at the current level of output

Demand for its product is price inelastic

Let P=price, MR=marginal revenue, MC=marginal cost, and ATC=average total cost. In monopolistic competition, which of the following most accurately describes the long run equilibrium conditions for a firm?

P=ATC, MR=MC, and P>MC

A monopolistically competitive firm advertises in order to

Make the demand for its product less price elastic

Barriers to entry

product differentiation, institutional barriers(EX.Patents), licensing restrictions