Exam (elaborations) AP Microeconomics: Unit 4

, 5 Characteristics of a Monopoly - CORRECT ANSWERS-1) Single Seller
2) Unique good with no close substitute
3) "Price Maker"
4) High Barriers to Entry
5) Some "Nonprice" Competition

Single Seller (1) - CORRECT ANSWERS--one firm controls the vast majority of a
market
-firm=industry

"Price Maker" (3) - CORRECT ANSWERS--firm can manipulate price by changing the
quantity produced (ie. shifting supply to the left)

High Barriers to Entry (4) - CORRECT ANSWERS--new firms CANNOT enter market
-no immediate competitors
-firms can make profit in the long-run

Some "Nonprice" Competition (5) - CORRECT ANSWERS--monopolies still advertise
their products in an effort to increase demand

Four Origins of Monopolies (Barriers to Entry) - CORRECT ANSWERS-1) Geography
2) Government
3) Technology or Common Use
4)Mass Production and Low Costs

Main difference between Monopolies and Perfect Competition - CORRECT ANSWERS-
MARGINAL REVENUE DOES NOT EQUAL PRICE (MR LESS THAN PRICE)
-monopolies (and all imperfectly competitive firms) have downward sloping demand
curve

How does a firm sell more in a monopoly? - CORRECT ANSWERS-A firm must lower
its price

Total Revenue Test - CORRECT ANSWERS-If price falls and TR increases, then
demand is elastic;
If price falls and TR falls, then demand is inelastic
(A monopoly will only produce in the elastic range)

Where do monopolists produce? - CORRECT ANSWERS-Where MR=MC, but it
charges the price consumers are willing to pay identified by the demand curve

Are monopolies efficient? - CORRECT ANSWERS-No, monopolies under-produce and
overcharge

What happens to CS and PS for a monopoly? - CORRECT ANSWERS-CS decreases
PS increases