Chapter 9 Review Questions
1. Why is it sometimes difficult to decide whether a particular firm is a monopoly? Which U.S. markets are often considered to exemplify monopoly?
2. Why do monopolies arise? Discuss the most common factors that explain the existence of a monopoly.
3. How can the government create a monopoly? Why might the government want to do this?
4. Drunk with power, the CEO of Monolith, Inc., a single price monopoly, assumes that he can set any price he wants and sell as many units as he wants at that price. Is he correct? Why or why not?
5. True or false? “A firm’s marginal cost curve is always its supply curve.” Explain.
6. Why might the decision to shut down be different for a monopoly than for a perfectly competitive firm?
7. Why might a monopoly earn an economic profit in the long run? How does this differ from the situation faced by a perfectly competitive firm?
8. Explain why, if a monopoly takes over all the firms in a perfectly competitive industry, its marginal cost curve will be the same as the perfectly competitive industry’s supply curve.
9. Firm A maximizes profit at an output of 1,000 units, where Price = 50 and MC = 50. Firm B maximizes profit at an output of 2,000 units, where Price = 5 and MC = 3. Which firm is likely to be a monopoly and which perfectly competitive? Explain your reasoning.
10. How do output and price for a monopoly compare with output and price if the same market were perfectly competitive?
11. In the long run, a monopoly can earn positive economic profit; in the real world, monopolies often don’t. Explain this apparent paradox.
12. Explain the difference between a single-price monopoly and a price-discriminating monopoly. What conditions must be present in order for a monopoly to price discriminate? Explain why each condition is necessary.
13. True or false? “Price discrimination by a monopoly always harms consumers.” Explain.