Chapter 13: Monopoly and Antitrust Policy

Barriers to Entry

Factors that prevent new firms from entering and competing in imperfectly competitive industries.

Clayton Act of 1914

Strengthened Sherman Act, outlawed certain anticompetitive practices not prohibited by the Sherman Act, including price discrimination, tying contracts, exclusive dealing, interlocking directorates, and buying the corporate stock of a competitor.

Deadweight Loss of Monopoly

The social Cost associated with the distortion in consumption from a monopoly price.

Federal Trade Commission

A federal regulatory group created by Congress in 1914 to investigate the structure and behavior of firms engaging in interstate commerce, to determine what constitutes unlawful "unfair" behavior, and to issue cease-and-desist orders to those found in violation of antitrust law.

Government Failure

occurs when the government becomes the tool of the rent seeker and the allocation of resources is made even less efficient by the intervention of government

Imperfectly Competitive Industry

an industry in which individual firms have some control over the price of their output

Market Power

an imperfectly competitive firm's ability to raise price without losing all of the quantity demanded for its product

Natural monopoly

An industry that realizes such large economies of scale in producing its product that single-firm production of that good or service is most efficient.

Network Externalities

the value of a product to a consumer increases with the number of that product being sold or used in the market

No-Arbitrage Condition

To effectively price discriminate, firms must prevent customers from reselling.

Patent

a barrier to entry that grants exclusive use of the patented product or process to the inventor

Perfect Price Discrimination

Occurs when a firm charges the maximum amount that buyers are willing to pay for each unit.

Price Discrimination

the business practice of selling the same good at different prices to different customers

Pure Monopoly

A market structure in which one firm sells a unique product, into which entry is blocked, in which the single firm has considerable control over product price, and in which nonprice competition may or may not be found.

Rent-Seeking Behavior

The actions by persons, firms, or unions to gain special benefits from government at the taxpayers' or someone else's expense.

Rule of Reason

before ruling on the legality of certain business practices, a court examines why they were undertaken and what effect they have on market competition

Oligopoly

An industry composed of a limited number of large firms

Monopolistic Competitors

Firms that differentiate their products in industries with many producers and free entry

Z. A monopoly no longer looks at a market price to see what it can charge; it sets the market price. (True/False)

True

Z. How does a monopolist firm maximize profits?

a monopolist will maximize profits by expanding output so long as marginal revenue exceeds marginal cost.

Z. What is the Marginal Revenue of a monopolist firm?

MR = P + (ΔP/ΔQ)xQ

Z. What is the Profit-Maximizing Level of output for a monopolist?

the profit-maximizing level of output for a monopolist is the one at which marginal revenue equals marginal cost: MR=MC.

Z. Do monopolistic industries have supply curves?

No. A monopolist sets both price and quantity, and the amount of output that it supplies depends on its marginal cost curve and the demand curve that it faces. In other words, firms in imperfectly competitive markets have no supply curves.

Z. In imperfectly competitive​ markets,

some competition may exist in the markets.

Z. In an imperfectly competitive industry,

a single firm has some control over the price of its output.

Z. Monopolies, oligopolies, and monopolistic competitive industries all

have market power.

Z. A monopoly is an industry with

a single firm in which the entry of new firms is blocked.

Z. Monopolistic competition is an industry market structure with

many firms each able to differentiate their product.

Z. A coffee manufacturer raises the price of its coffee by​ 10%, and the quantity demanded of its coffee falls by only​ 12%.

This firm has

some market power.

Z. The demand curve for insulin is most likely represented by

A vertical demand line

Z. Monopolists differ from perfectly competitive firms

on the demand side of the profit equation alone.

Z. For a monopolist to sell more units of​ output,

the price must be reduced.

Z. In a​ monopoly, the market demand curve is

the same as the demand curve facing the firm.

Z. For a perfectly competitive​ firm, the marginal revenue curve has​ ________ point(s) in common with the​ firm's demand curve.

all

Z. When a monopolist sells two units of output its total revenue is​ $150. When a monopolist sells three units of output its total​ revenue, is​ $210.

When the monopolist sells three units of​ output, the price per unit is

$70

Z. When a monopolist sells two units of output its total revenue is​ $600. When a monopolist sells three units of output its total revenue is​ $630.

In order to sell three units of output instead of only​ two, the monopolist must

decrease its price by​ $90 per unit.

600/2=300

630/3=210

300-210=90

decrease its price by $90 per unit

Z. A monopolist will not produce

in the inelastic portion of its demand​ curve, where marginal revenue is negative.

Z. From​ society's point of​ view, a monopolist produces too little because price

Z. Which of the following statements regarding perfect price discrimination is​ FALSE?

Perfect price discrimination yields the same market price and output result as perfect competition.

Z. Why do price discriminating firms often offer lower prices to children and the​ elderly?

They have a lower willingness to pay than other consumers.

Z. Which of the following is not an example of price​ discrimination?

Back-to-school sales