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How do high barriers to entry affect long-run profits for a monopoly?
High barriers to entry allow monopolies to sustain long-run profits by preventing competition.
How does a monopoly's output decision affect the market price?
A monopoly's decision to decrease output increases the market price, as it controls the supply.
How does regulating a monopoly with a price ceiling affect its output and price?
A price ceiling can force a monopoly to increase output and lower its price, moving towards allocative efficiency.
How does a natural monopoly benefit society?
It can lead to lower prices and productive efficiency due to economies of scale.
How does a monopoly's profit-maximizing output relate to elasticity of demand?
A monopoly will always produce in the elastic region of the demand curve to maximize revenue.
How does a price ceiling at the socially optimal level affect a monopoly?
It forces the monopoly to produce at the allocatively efficient level where P=MC.
How does a price ceiling at the fair-return price affect a monopoly?
It allows the monopoly to earn a normal profit where P=ATC.
How does a monopoly's market power affect consumer surplus?
Monopolies reduce consumer surplus by charging higher prices and producing less output compared to competitive markets.
If a monopoly is experiencing losses, should it continue to produce?
The monopoly should continue to produce as long as P > AVC, to minimize losses.
How does advertising affect a monopoly's demand curve?
Advertising can shift the demand curve to the right, increasing both price and quantity.
What is the effect of a price ceiling set below the socially optimal price?
It can lead to shortages and reduced output.
How does a price ceiling affect a monopoly's profits?
It can reduce or eliminate profits, potentially leading to losses.
What is the impact of antitrust laws on monopolies?
They aim to prevent monopolies from forming or to break them up, promoting competition.
What is the impact of government subsidies on monopolies?
Subsidies can encourage monopolies to produce at higher levels of output, potentially closer to the socially optimal level.
How does regulation requiring a fair-return price affect a monopoly?
It allows the monopoly to earn a normal profit, preventing economic losses but not achieving allocative efficiency.
What is the effect of taxing a monopoly?
It reduces the monopoly's profit and may lead to a decrease in output and an increase in price.
How does deregulation affect a previously regulated monopoly?
It can lead to higher prices and lower output if the firm still possesses significant market power.
What is the effect of a lump-sum tax on a monopoly's output?
A lump-sum tax only affects fixed costs and does not change the profit-maximizing output.
How do consumer protection laws affect monopolies?
They prevent monopolies from engaging in unfair or deceptive practices, protecting consumers.
What is the effect of encouraging competition through deregulation?
It can lead to lower prices, increased output, and greater innovation.
On a monopoly graph, where is the profit-maximizing quantity?
Where MR = MC.
On a monopoly graph, how do you find the profit-maximizing price?
Go up from the MR=MC point to the demand curve.
How is profit calculated on a monopoly graph?
(Price - ATC) x Quantity.
How is loss calculated on a monopoly graph?
(ATC - Price) x Quantity.
On a monopoly graph, what does the area between the demand curve and MC curve represent beyond the profit-maximizing quantity?
Deadweight loss.
On a monopoly graph, where is the socially optimal point?
Where D = MC.
On a monopoly graph, where is the fair-return point?
Where P = ATC.
On a monopoly graph, where is total revenue maximized?
Where MR = 0.
On a monopoly graph, how do you identify the elastic region of the demand curve?
The part of the demand curve above the point where MR = 0.
On a monopoly graph, what does the area between ATC and price at the profit-maximizing quantity represent?
Profit or loss, depending on which curve is higher.