monopoly

• A pure monopoly occurs when one firm controls a hundred percent of the market share
• A pure monopoly is a common and realistic market structure.

  False
• What is the legal definition of monopoly power in terms of market share control?

  More than 25 percent
• A firm with monopoly power is also referred to as a legal monopoly
• Monopolies typically sell identical products.

  False
• Why are monopolies considered price makers?

  They sell unique products
• Supernormal profits can persist in monopolies due to high barriers to entry
• Monopolies operate under perfect information about market conditions.

  False
• What is the profit maximization condition for monopolies?

  MR = MC
• In a monopoly diagram, the average revenue curve is also the demand curve
• The marginal revenue curve in a monopoly diagram is twice as steep as the average revenue curve.
• What shape does the average cost curve take in a monopoly diagram?

  U-shaped
• Monopolies maximize profit by producing where marginal cost equals marginal revenue
• The supernormal profit of a monopoly is represented by the area where average revenue is greater than average cost.
• What is the condition for allocative efficiency in a market?

  P = MC
• Monopolies are allocative efficient because they charge a price equal to marginal cost.

  False
• Monopolies exploit consumers by charging a price higher than marginal cost
• Why do monopolies restrict output to raise prices?

  To maximize profit
• Monopolies always produce at the minimum point of their average cost curve.

  False
• What is X inefficiency in monopolies?

  Waste and excess costs
• X inefficiency can occur because monopolies become complacent due to a lack of competition.
• Monopolies could reinvest supernormal profits into research and development
• What is the potential upside of monopolies in terms of efficiency?

  Dynamic efficiency