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Monoplies

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Please give me your answers to these study questions. If you are not sure, can you give me a web site to go to?

1-1. In a monopoly market,
a. one firm is the only supplier of a product for which there are no close substitutes.
b. entry into the market is blocked.
c. the firm can influence market price.
d. all of the above

1-2. One method of measuring the extent of a firm's market power is:
a. the Lerner index.
b. price elasticity of demand for the firm's product.
c. income elasticity of demand for the firm's product
d. both a and b.
e. all of the above.

1-4. A monopoly is producing a level of output at which price is $80, marginal revenue is $40, average total cost is $100, marginal cost is $40and average fixed cost is $10. In order to maximize profit, the firm should
a. produce more.
b. keep output the same.
c. produce less.
d. shut down.

1-21. Economic rent
a. is the payment to a more productive resource above its opportunity cost.
b. cannot be earned in long-run competitive equilibrium.
c. is competed away in the long run.
d. both b and c
e. all of the above.

1-23. Firms that employ exceptionally productive resources
a. have lower costs than other firms in the industry and are able to earn positive economic profit in the long run.
b. earn only a normal rate of return.
c. will typically have to pay the exceptional resource economic rent equal to the reduction in cost attributable to employing the exceptionally productive resource.
d. both a and b
e. both b and c

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Solution Preview

1-1. In a monopoly market,
a. one firm is the only supplier of a product for which there are no close substitutes.
b. entry into the market is blocked.
c. the firm can influence market price.
d. all of the above
d. all of the above
1-2. One method of measuring the extent of a firm's market power is:
a. the Lerner index.
b. price elasticity of demand for the firm's product.
c. income elasticity ...

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Similar Posting

Monopolies

Several of you have mentioned that monoplies arise from economies of scale: a particularly interesting issue is the concept of Minimum Efficiency Scale (MES).

Are monoplies necessarily bad?
In what cases are monopolies necessarily evils that are preferable to wasteful competition?
The AT&T situation until its 1984 break-up, or others such as Boeing and Airbus, may give us some useful insights.
Other examples that would be interesting to discuss are the cases in which the government supports the existence of monoplies by giving them exclusives licenses/franchises, and why it makes sense to do so.

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