Question

2,3 and 5

CHAP PRICE-SEARCHER MARKETS WITH HIGH ENTRY BARRIERS con granted the only license to sell cable in 2. Which of the following firms best fits the definition of a monopoly 2 McDonald's, because it is the only firm who produces the Big Mac b a local cable company who has been granted the only license to a city by the town council c Ford Motor Company, because there a production of automobiles ompany, because there are significant economies of scale in the d. Harvard University, because it has a reputation as being one versities in the country has a reputation as being one of the top uni- 3. Which of the following is not a barrier that limits the entry of poten petitors into a market? a government licensing b. control over an essential resource c an elastic demand for a product d. patent rights 4. When significant economies of scale are present in the production process, an industry will tend naturally toward monopoly because 1. one firm will be able to produce the entire market output at a lower cost than several smaller firms. b. marginal revenue will be less than market price, giving firms the incentive to equate marginal cost with price instead of equating marginal cost and mar- ginal revenue. C. economies of scale can only be present when firms produce identical prod- ucts and there is no reason to have more than one firm producing the exact product. d. consumers will be unwilling to compare the prices charged by several differ- ent firms. 5. How will the price and output of an unregulated monopolist compare with the ideal levels that might be reached if the market was competitive? a. The output of the monopolist will be larger and the price lower. b. The output of the monopolist will be larger and the price higher. C. The output of the monopolist will be smaller and the price lower. d. The output of the monopolist will be smaller and the price higher. 6. Allowing firms to receive patents on new inventions

Answer 1

(2) (b)

A monopoly is the single firm operating in a defined market.

(3) (c)

Elasticity of demand is not an entry barrier.

(4) (a)

Economies of scale makes production by a single firm more efficient than production by multiple firms.

(5) (d)

Monopoly output is larger than and monopoly price is smaller than competitive output and price respectively.