Chapter 10 Dynamic Pricing Allows Seller Always Charge

87. Dynamic pricing allows a seller to

88. All of the following can be used to increase monopoly power except

A. Acquisitions.

89. Which of the following is an accurate argument in support of market power?

A. It restricts output and raises prices, contributing to more efficient use of resources.

90. The argument that concentration of market power enhances research and development efforts may be weak

because

A. Monopolies cannot afford basic research.

91. According to the text, a convincing argument against concentration of market power is that

92. According to the text, one argument in favor of concentration of market power is that

93. Markets that exhibit economies of scale over the entire range of market output

A. Are natural monopolies.

94. Economies of scale over the entire range of market output

95. Consumers may not experience the benefits of economies of scale because a natural monopoly

A. Has higher costs with higher output.

96. Even if a market is not competitive, the firms in the market may behave competitively if

A. Potential competition exists.

97. In a contestable market,

98. In a contestable market,

A. An imperfectly competitive industry does not face any potential competition when profits increase.

99. According to the theory of contestable markets, monopoly may not be a problem if

100. If a company is the sole U.S. producer of good X, the market may still be contestable because of all but

which one of the following?

101. Sky-High Skywriters charges competitive prices for its skywriting services even though it has no

competition. This is most likely because

A. There are no economies of scale in this industry.

102. The federal government’s lawsuit against ATamp;T was motivated in large part by

103. The primary purpose of antitrust policy in the United States is to

104. The Microsoft Corporation was sued by the government for all but which one of the following antitrust

violations?

105. Microsoft’s argument against the government’s antitrust suit included all but which one of the following?

A. It dominated the computer industry because it produced the best products.

the industry’s output.

106. Which of the following prohibits price discrimination, certain types of mergers, and interlocking boards

of directors among competing companies?

A. The Sherman Act.

107. Which of the following prohibits exclusive

dealing? A. The Sherman Act.

108. Which of the following was the first to prohibit “conspiracies in restraint of trade”?

A. The Sherman Act.

109. Google holds market power by all of the following strategies

except A. Purchasing rivals.

110. Google is currently being investigated by

A. The European Antitrust Authority.

111. The World View article titled “Russia’s Sable Monopoly Persists” provides evidence that Russia

experienced

A. Barriers to entry.

112. Based on the headline “Russia’s Sable Monopoly Persists” you could predict that

113. The World View article “Foxy Soviets Pelt the West: Sable Monopoly Traps Hard Currency, Coats Capitalists”

provides evidence that the Soviets would

A. Experience zero long-run profits in the sable market.

114. The World View article “Foxy Soviets Pelt the West: Sable Monopoly Traps Hard Currency, Coats Capitalists”

provides evidence that

115. An In The News article titled “Ticketmaster Rolls Out Dynamic Pricing” indicates that Ticketmaster

116. An In the News article titled “Jury Rules Magnetek Unit Is Liable for Keeping Technology off Market”

reported, “A county superior court jury in Oakland ordered a unit of Magnetek Inc. to pay $25.8 million to two

California entrepreneurs . . . the unit had failed to bring the pair’s energy-saving fluorescent-light technology

to market in a profitable manner . . . in favor of an outmoded technology.” The most correct implication of this

quotation is that Magnetek

117. The In the News article “XM-Sirius Merger Made Simple: One Is Always Less Than Two” discusses the

proposed merger of two satellite radio companies. Antitrust officials will examine the merger in order to

118. The In the News article ” A Sirius Mistake? FCC Approves XM-Sirius Merger” discusses the merger of two

satellite radio companies. In some industries, mergers can be economically justified if economies of scale

119. Considering the In the News article ” Judge Rules Microsoft Violated Antitrust Laws,” antitrust laws

attempt to

120. According to the In the News article, “U.S. Sues over Drug’s Price Hike,” Ovation pharmaceuticals violated

federal law in 2006 when it bought a competitor’s drug, creating a monopoly for the heart treatment used on

premature babies, then raised the price. If a monopoly increases the price of its product, it must believe that

it faces a(n)

121. According to the In The News article “Intel’s Concessions Settle Antitrust Suit,” Intel Corp. agreed to

122. The essence of market power is the ability to alter the price of a product.

123. A monopolist has market power because it faces a downward-sloping demand curve.

124. A monopoly occurs when one firm produces all of the market supply of a good or service.

125. Monopolists can charge any price and sell any amount of output they want because no competition exists.

126. For a monopolist, profit is maximized at the level of output where MR = MC.

127. For a monopoly, the marginal revenue from selling an extra unit of output is less than the price of that unit.

128. Barriers to entry are obstacles, such as patents, that make it difficult for new consumers to enter a market.

129. Economies of scale involve a reduction in minimum average costs as a result of an increase in the size

of plants and equipment.

TRUE

130. A multi-plant monopolist produces more than if each of its plants were a separate firm in a competitive market.

131. When compared to a competitive market, monopolists tend to charge a higher price and produce a greater

level of output.

132. In the long run, a monopolist can continue to earn economic profits.

133. It is possible for a monopolist to earn an economic loss.

134. There’s a basic tendency for monopolies to inhibit productivity advances and economic growth.

135. The ultimate constraint on market power is the market demand curve.

136. A monopolist with the ability to use price discrimination produces more to maximize profit than it would if it could

charge only one price.

137. Lawsuits can act as a barrier to entry in monopoly markets.

Topic: A COMPARATIVE PERSPECTIVE OF MARKET POWER

138. Monopolies need some type of barrier to entry to keep potential competitors away.

139. To maintain market power, firms will sometimes purchase their competitors.

140. Monopolists have an advantage over competitive markets in receiving the full benefit of research and

development efforts.

141. A monopoly is considered more desirable to society than a perfectly competitive firm because a monopoly

has the incentive to pursue research and development.

142. Economies of scale occur when the long-run average cost curve slopes downward.

143. When markets are contestable, a monopoly firm must behave as if it had competitors, even though the market

structure is monopolistic.

144. Even when a market appears to be a monopoly, it can be contestable if there are many potential entrants.

145. Antitrust laws can restrain the abuse of monopoly power.

146. The Sherman Act prohibits price discrimination.

147. The major focus of the Clayton Act is to prevent the development of monopolies.

148. The Federal Trade Commission was created to study industry structures and behavior and

identify anticompetitive practices.

149. Explain the concept of market power. Why does a monopolist have market power while a perfectly competitive

firm does not?

150. Explain why a perfectly competitive firm can sell as much as it wants at the market price but a monopolist must

lower its price to sell more.

151. Diagram a model of a monopoly experiencing economic profits. In your diagram show the monopolist’s ATC,

MC, MR, and demand curves. In addition, indicate the profit-maximizing output and price and the output and

price that would prevail under marginal cost pricing. Using this diagram, explain why it is not in the

monopolist’s interest to use marginal cost pricing.

152. Describe how monopolists use barriers to entry to maintain their pricing power.

Topic: A COMPARATIVE PERSPECTIVE OF MARKET POWER

153. State and evaluate the arguments made for concentration of market power.

Chapter 10 Test Bank Summary