11/29/2023 0 Comments Chapter 12 monopoly economics quizlet![]() Knowing this externally given price, the competitor then equates it with the firm's MC and produces the amount determined by this equality.f. ![]() The pure competitor accepts the price given by total industry supply and demand. This price differs at each output because the demand curve is downsloping. Having determined at what quantity this equality occurs, the monopolist simultaneously sets price. In the long run, only a firm with monopoly power can gain economic profits in pure competition such profits would invariably be competed away by new entry.e. Moreover, large profits in the short run are often associated with monopoly power. Large profits also enable the firm to price below cost, to engage (illegally) in a price war. Large profits allow expansion to gain economies of scale and thus prevent the late entry of smaller rivals. This statement can be true and probably is in many cases. When P > MC, society is willing to pay more than the opportunity cost of the last item's production.d. Marginal cost is the value to society of the alternative production forgone when the last item is produced. Price is the value society sets on the last item produced. Nice, but if the same monopolist can sell 1,000 units for $40 when ATC is $39, then, though its per-unit profit is a mere $1 (= $40 - $39), its total profit is $1,000 (= 1,000($40 - $39)). If the monopolist sells one unit for $100 when ATC is $60, then its profit per unit and total profit is $40 (= $100 - $60). The monopolist seeks the output that will yield the greatest profit. And even a monopolist that does produce sensibly where MR = MC may still suffer a loss: P can be below ATC at all levels.b. If the monopolist charged the highest price consumers would pay, it would sell precisely one unit! (Conceivably, it might sell a little more than one if more than one consumer made matching bids for the first unit offered.) It is highly unlikely that the sale of one unit (or a very few) would cover the very high AFC of one or a very few units. false -false -true -cannot be determined -true -true. For example, they may try to influence legislation that protects their monopoly powers. Monopolies may also incur nonproductive costs through "rent-seeking" expenditures. On the other hand, monopolies may suffer from X-inefficiency, the inefficiency that a lack of competition allows. And in such industries as basic steel-making and car manufacturing, pure competition would involve a very high cost. This is certainly the case with most public utilities. Economies of scale may be such as to ensure that one large firm can produce at lower cost than a multitude of small firms. Thus, the monopolist's price will be higher than the pure competitor's price. When the monopolist equates MR and MC, it is not selling at that price: The monopolist's selling price is on the demand curve, vertically above the point of intersection of MR and MC. In these circumstances, MR is always less than price for the monopolist to sell more the monopolist must lower the price on all units, including those it could have sold at the higher price had it not put more on the market. When it decreases the quantity it produces, price rises. When it increases the quantity it produces, price drops. The monopolist, on the other hand, is the industry. ![]() The firm cannot force the price up by holding back part or all of its supply. It can sell all that it wishes at the price established by demand and the total industry supply. In pure competition, MR = P because the firm's supply is so insignificant a part of industry supply that its output has no effect on price. Since a pure monopolist is more likely than the pure competitor to make economic profits in the short run and is, moreover, the only one of the two able to make economic profits in the long run, the distribution of income is more unequal with monopoly than with pure competition. Specifically, resources are underallocated to monopolistic industries. Because the monopolist does not produce at the point of minimum ATC and does not equate price and MC, its allocation of resources is inferior to that of the pure competitor. The correct combination is: 1.PMonopoly > PCompetition5.QMonopoly ProfitCompetition b. ![]() As a matter of fact, the pure competitor will have no economic profits in the long run even though it might have some in the short run. With the same costs, the pure monopolist will charge a higher price, have a smaller output, and have higher economic profits in both the short run and the long run than the pure competitor. monopolies might experience economies of scale not available to competitive firms - reduce the price below a pure competitor and improve resource allocation explanation-explanation- a. pure competitors are small with no market power. 1, 5, and 7 - inefficiently, because the monopolist does not produce at the point of minimum ATC and does not equate price and MC.
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