CHAPTER 33
Monopoly, Power, Prices, and Profits
Explain now monopoly markets differ from competitive markets
OUTLINE OF CHAPTER
I. Demand and Revenue for a Monopoly
LEARNING OBJECTIVES
KEY TERMS
marginal revenue
the change in the total revenue a firm will receive as a result of the sale of one additional unit.
ANSWERS TO END OF CHAPTER REVIEW QUESTIONS
Explain now monopoly markets differ from competitive markets
1. What assumptions of a perfectly competitive market are violated? Explain.
2. How does demand curve for individual monopolists differ from demand curve for
individual firm in a perfectly competitive market? Explain.
The demand curve for individual monopolists is the same as the market demand curve.
Understand the production and pricing decisions of a monopolist.
3. How is profit maximizing quantity decision the same for a monopoly and for a firm in a
perfectly competitive market? How is the pricing decision different? Explain.
4. How do monopolists maintain their monopoly? How does this violate assumptions of a
Explain why monopolies are generally inefficient.
5. Why is output different for a monopolist than for a firm in a perfectly competitive
market?
6. Can a monopolist set both price and quantity? Explain.
APPENDIX 33.1
Modification of Monopoly Analysis
LEARNING OBJECTIVES FOR APPENDIX 33.1
Describe why and how monopolists increase revenue.
OUTLINE OF APPENDIX
I. More on Monopolies
II. Who are the Monopolists?
KEY TERMS
monopsony
situation in which a firm is the only buyer of a particular resource or intermediate product
natural monopoly
ANSWERS TO APPENDIX 33.1 REVIEW QUESTIONS
Describe why and how monopolists increase revenue.
1. Explain why monopolists put efforts into maintaining their monopoly.
2. Explain how monopolists lower costs and increase demand.
Monopolists can increase demand by enlisting cooperation of government to maintain
Explain the sources of a natural monopoly.
3. What are some examples of natural monopolies?
A natural monopoly is one in which the technology creates a cost curve on which the
4. How do traditional and progressive economists differ in their analyses of monopolies?
Neoclassical economics treats monopolies as relatively rare, local or temporary.
List types of government regulation of monopolies and explain their effectiveness.
5. State examples of great attempts to regulate monopolies.
6. Explain why or why not government regulations are effective. Give examples.
Government regulation imposes a maximum price but the monopolies are still able to