chapter 13 - 1 Refer to the figure below Which of the...

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1. Refer to the figure below. Which of the following statements is true? Your Answer: This graph demonstrates that the monopoly could increase profit by increasing output to 4,000 units. Correct Answer: This graph demonstrates that a monopoly would produce less output and charge a higher price than a competitive industry faced with the same cost conditions. Incorrect. The monopoly maximizes profit by producing 2,500 units, where marginal revenue equals marginal cost. 2. Perfect price discrimination means that a firm charges: Your Answer: Different prices to people of different racial or ethnic backgrounds. Correct Answer: The maximum amount that buyers are willing to pay for each unit. Incorrect. Perfect price discrimination occurs when a firm charges the maximum amount that buyers are willing to pay for each unit. 3.
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A trust is an arrangement between business firms to try to preserve competition. Your Answer: False Correct. A trust is a group of firms acting as a monopoly to control price and output. 4. A natural monopoly is an industry in which economies of scale are so large that it makes sense to have just one firm. Your Answer: True Correct. One firm can produce the entire market output at a lower cost than two or more firms can. 5. All monopolies are imperfectly competitive firms, but not all imperfectly competitive firms are monopolies. Your Answer: True Correct. Imperfectly competitive firms are firms that can control price. Monopolies are firms that enjoy significant barriers to entry and no close substitutes. 6. Can you think of an instance in which having a single firm in an industry may be efficient? Your Answer: sad Yes. When a firm exhibits economies of scale so large that average costs continuously decline with output, it may be efficient to have only one firm in an industry. Such an industry is called a natural monopoly . 7. Explain what is government failure and its relationship to rent-seeking behavior . Your Answer: sad
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The idea of government failure is at the center of public choice theory . Government fails when it becomes the tool of the rent seeker (a monopoly trying to prevent entry). In such a case, the role of government in trying to improve the allocation of resources is reversed--the allocation of resources is made even less efficient by the intervention of government. Monopoly power is not in the public interest, but politicians and bureaucrats, acting in their own self-interest, not in the public interest, are captured by the monopolies they are supposed to regulate. 8. Fill in the blanks. The more broadly defined an industry is, the _______ the amount of substitutes available, and the _______ elastic demand for that industry’s products is likely to be. Your Answer:
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chapter 13 - 1 Refer to the figure below Which of the...

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