Book: economics a contemporary introduction Chapter 9

Questions for Review 1. Barriers to Entry Complete each of the following sentences: 7. Revenue Curves Why would a monopoly firm never know- ingly produce on the inelastic portion of its demand curve? a. A U.S. awards inventors the exclusive right to pro- duction for 20 years. 8. Profit Maximization Review the following graph showing the b. Patents and licenses are examples of government-imposed short-run situation of a monopolist. What output level does the that prevent entry into an industry. firm choose in the short run? Why? c. When economies of scale make it possible for a single firm to satisfy market demand at a lower cost per unit than could two or more firms, the single firm is considered a d. A potential barrier to entry is a firm's control of a(n) critical to production in the industry. MC 2. Barriers to Entry Explain how economies of scale can be a ATC AVC barrier to entry. . Case Study: Is a Diamond Forever? How did the De Beers car- tel try to maintain control of the price in the diamond market? Dollars per unit How was this control undermined? MR 4. Revenue for the Monopolist How does the demand curve faced by a monopolist differ from the demand curve faced by a perfectly competitive firm? Revenue for the Monopolist Why is it impossible for a profit- D = AR maximizing monopolist to choose any price and any quantity it wishes? O BC D Revenue Schedules Explain why the marginal revenue curve Quantity for a monopolist lies below its demand curve, rather than co- inciding with the demand curve, as is the case for a perfectly 9. Allocation and Distributive Effects Why is society worse off un- competitive firm. When is it ever possible for a monopolist's marginal revenue curve to coincide with its demand curve? der monopoly than under perfect competition, even if both market structures face the same constant long-run average cost curve