Monopoly - AP Microeconomics
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What condition allows a monopoly to earn long-term economic profits?
What condition allows a monopoly to earn long-term economic profits?
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High barriers to entry. Prevents competition from eroding monopoly profits over time.
High barriers to entry. Prevents competition from eroding monopoly profits over time.
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What does the Lerner Index measure in a monopoly?
What does the Lerner Index measure in a monopoly?
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Market power. Measures ability to set prices above marginal cost.
Market power. Measures ability to set prices above marginal cost.
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Identify a way to break up a monopoly.
Identify a way to break up a monopoly.
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Antitrust laws. Legal tools to promote competition and prevent monopolization.
Antitrust laws. Legal tools to promote competition and prevent monopolization.
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What is the natural monopoly?
What is the natural monopoly?
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A monopoly due to economies of scale. High fixed costs make single producer most efficient.
A monopoly due to economies of scale. High fixed costs make single producer most efficient.
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What is the profit-maximizing rule for monopolies?
What is the profit-maximizing rule for monopolies?
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Produce where $MR = MC$. Standard profit maximization condition for all firms.
Produce where $MR = MC$. Standard profit maximization condition for all firms.
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Identify one source of monopoly power.
Identify one source of monopoly power.
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Control of a key resource. Essential inputs create natural barriers to competition.
Control of a key resource. Essential inputs create natural barriers to competition.
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Which concept explains monopoly's benefit in certain industries?
Which concept explains monopoly's benefit in certain industries?
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Natural monopoly. Economies of scale justify single-firm production.
Natural monopoly. Economies of scale justify single-firm production.
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What is the natural monopoly?
What is the natural monopoly?
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A monopoly due to economies of scale. High fixed costs make single producer most efficient.
A monopoly due to economies of scale. High fixed costs make single producer most efficient.
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How does a monopoly affect consumer surplus?
How does a monopoly affect consumer surplus?
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Reduces consumer surplus. Higher prices and lower output decrease consumer welfare.
Reduces consumer surplus. Higher prices and lower output decrease consumer welfare.
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Identify a regulatory method for monopolies.
Identify a regulatory method for monopolies.
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Price capping. Government sets maximum prices to protect consumers.
Price capping. Government sets maximum prices to protect consumers.
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What is a monopolist's main goal?
What is a monopolist's main goal?
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Maximize profit. Primary objective of all profit-seeking firms.
Maximize profit. Primary objective of all profit-seeking firms.
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What is the role of advertising in a monopoly?
What is the role of advertising in a monopoly?
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To differentiate products and maintain market power. Creates brand loyalty and strengthens barriers to entry.
To differentiate products and maintain market power. Creates brand loyalty and strengthens barriers to entry.
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What is a monopoly?
What is a monopoly?
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A market structure with a single seller dominating the market. Distinguishes monopoly from competitive markets with multiple sellers.
A market structure with a single seller dominating the market. Distinguishes monopoly from competitive markets with multiple sellers.
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How does a monopoly compare to perfect competition in terms of output?
How does a monopoly compare to perfect competition in terms of output?
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Produces less output. Restricts output to maintain higher prices.
Produces less output. Restricts output to maintain higher prices.
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What type of demand curve does a monopoly face?
What type of demand curve does a monopoly face?
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Market demand curve. Single firm faces entire industry demand.
Market demand curve. Single firm faces entire industry demand.
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State the formula for average revenue (AR) in a monopoly.
State the formula for average revenue (AR) in a monopoly.
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$AR = \frac{TR}{Q}$. Average revenue equals price in all market structures.
$AR = \frac{TR}{Q}$. Average revenue equals price in all market structures.
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How is marginal revenue (MR) related to price in a monopoly?
How is marginal revenue (MR) related to price in a monopoly?
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$MR < P$. Must lower price to sell more units, reducing marginal revenue.
$MR < P$. Must lower price to sell more units, reducing marginal revenue.
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What is the demand curve like for a monopolist?
What is the demand curve like for a monopolist?
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Downward sloping. Monopolist faces entire market demand, which decreases with quantity.
Downward sloping. Monopolist faces entire market demand, which decreases with quantity.
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State the formula for total revenue (TR) in a monopoly.
State the formula for total revenue (TR) in a monopoly.
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$TR = P \times Q$. Standard revenue formula applies to all market structures.
$TR = P \times Q$. Standard revenue formula applies to all market structures.
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What is a cartel?
What is a cartel?
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A group of firms acting as a monopoly. Collusion creates monopoly-like market power.
A group of firms acting as a monopoly. Collusion creates monopoly-like market power.
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What is deadweight loss in the context of monopoly?
What is deadweight loss in the context of monopoly?
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Loss of total welfare due to a monopoly's pricing. Results from pricing above marginal cost and reduced output.
Loss of total welfare due to a monopoly's pricing. Results from pricing above marginal cost and reduced output.
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Which term describes a monopoly's ability to set prices?
Which term describes a monopoly's ability to set prices?
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Price maker. Unlike price takers in competitive markets.
Price maker. Unlike price takers in competitive markets.
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Identify the type of profit a monopoly can earn in the short run.
Identify the type of profit a monopoly can earn in the short run.
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Economic profit. Can earn above-normal returns due to market power.
Economic profit. Can earn above-normal returns due to market power.
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What is an example of a government-granted monopoly?
What is an example of a government-granted monopoly?
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Patent. Intellectual property creates temporary monopoly rights.
Patent. Intellectual property creates temporary monopoly rights.
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What is the relationship between AR and demand curve in a monopoly?
What is the relationship between AR and demand curve in a monopoly?
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They are the same. Average revenue is price, which equals demand.
They are the same. Average revenue is price, which equals demand.
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What is a key disadvantage of monopoly for consumers?
What is a key disadvantage of monopoly for consumers?
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Higher prices. Monopoly power allows pricing above competitive levels.
Higher prices. Monopoly power allows pricing above competitive levels.
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How does a monopoly affect producer surplus?
How does a monopoly affect producer surplus?
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Increases producer surplus. Monopolist captures surplus through higher prices.
Increases producer surplus. Monopolist captures surplus through higher prices.
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What is a legal monopoly?
What is a legal monopoly?
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A monopoly protected by law. Government grants exclusive rights to operate.
A monopoly protected by law. Government grants exclusive rights to operate.
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What does the Lerner Index measure in a monopoly?
What does the Lerner Index measure in a monopoly?
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Market power. Measures ability to set prices above marginal cost.
Market power. Measures ability to set prices above marginal cost.
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How does a monopoly determine its price?
How does a monopoly determine its price?
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By setting $MR = MC$ and using the demand curve. Profit-maximizing quantity determines price on demand curve.
By setting $MR = MC$ and using the demand curve. Profit-maximizing quantity determines price on demand curve.
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