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Unformatted text preview: Chapter 17 - Monopoly Chapter 17: Monopoly Main Concepts and Learning Objectives This chapter focuses on market power. The chapter initially focuses on a monopolist's pricing decision, and the impact of monopoly power on consumer surplus and aggregate surplus. The results of this analysis are then used to examine strategies for testing for the existence of monopoly power. Three additional topics are also addressed in this chapter: non-price decisions made by monopolists, pricing decisions made by monopsonists, and regulation of industries characterized by monopoly power. Students who master the material presented in this chapter will be able to: • List sources of monopoly power • Compute the profit-maximizing price • Compute the impact of monopoly power on consumer surplus and the deadweight loss due to monopoly power • Discuss strategies for testing whether firms are competing or colluding to exert monopoly power • Analyze non-price decisions made by monopolists • Compute the price impacts of monopsony power • Discuss regulation of monopoly power 17-1 Chapter 17 - Monopoly Multiple Choice Quiz (10 questions) covering main points: 1. True or false: A firm has market power when the profit-maximizing price is greater than marginal cost. a. true b. false 2. Even though there are numerous producers of ready mix concrete in the US, some ready mix concrete firms have market power because a. ready mix concrete cannot be transported long distances because it must be used within an hour. b. local regulations confer monopoly power on some firms. c. a few of these firms dominate the national market. d. All of the above 3. Monopoly occurs for several reasons, including a. invention and patent of a new product. b. economies of scale. c. ownership of a critical resources. d. All of the above 4. Refer to Figure 17.1, which illustrates the relationship between marginal revenue and demand for a linear demand curve. In Figure 17.1, MR: a. intersects the vertical (price) axis at the same point as demand b. is steeper than demand c. intersects the horizontal axis at a quantity that is approximately half the quantity at which demand intersects the horizontal axis d. All of the above 5. According to the text, the price of a brand name drug could increase after the patent expires and generic competitors enter the market if a. the monopolist raises price in order to make up for lost sales. b. the monopolist exerts its market power to raise price. c. price conscious consumers buy the generic version and the only people who continue to buy the brand name drug are “brand-conscious”. d. none of the above 6. Under the TRIPS agreement, all members of the WTO must enforce product patents in pharmaceuticals. Enforcing these patents in India a. would lead to higher prices and reduced consumer surplus....
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