1.Consider the following firms. Would you regard any of them as a monopoly? Why or why not? Could youuse the monopoly model in analyzing the choices of any of them?
Explain.
a.the best restaurant in townb.
your barber or beauticianc.
your local telephone companyd.
your campus bookstoree.
the United States Postal Service
2.Explain the difference between the demand curve facing a monopoly firm and the demand curve facing aperfectly competitive firm.
3.What are the necessary conditions for a monopoly position in the market to be established?
4.A monopoly firm is free to charge any price it wishes. What constrains its choice of a price?
5.Suppose the government were to impose an annual license fee on a monopolist that just happened to beequal to its economic profits for a particular year. How would such a fee affect price and output? Do youthink that such a fee would be appropriate? Why or why not?
6.Name one monopoly firm you deal with. What is the source of its monopoly power? Do you think it seeksto maximize its profits?
7.“A monopolist will never produce so much output as to operate in the inelastic portion of the demandcurve.” Explain.
8.“A monopoly is not efficient, and its pricing behavior leads to losses to society.” What does this statementmean? Should society ban monopolies?
9.A small town located 30 miles from the nearest town has only one service station. Is the service station amonopoly? Why or why not?
10.Explain why under monopoly price is greater than marginal revenue, while under perfect competitionprice is equal to marginal revenue.
11.In what sense can the monopoly equilibrium be considered inequitable?
12.What is a natural monopoly? Should a natural monopoly be allowed to exist?
13.Give some examples of industries in which you think natural monopoly conditions are likely to prevail.Why do you think so?
14.People often blame the high prices for events such as professional football and basketball and baseballgames on the high salaries of professional athletes. Assuming one of these teams is a monopoly, use themodel to refute this argument.
15.How do the following events affect a monopoly firm’s price and output? How will it affect the firm’sprofits? Illustrate your answers graphically.
a. an increase in labor costs in the market in which the firm operatesb.
a reduction in the price of gasolinec.
the firm’s Chief Executive Officer persuades the Board to increase his or her annual salaryd.
demand for the firm’s product fallse.demand for the firm’s product risesf.
the price of a substitute for the firm’s product rises
