CHAPTER 24
Pure Monopoly

A. Short-Answer, Essays, and Problems

1. What are the major characteristics of pure monopoly?

2. What are the major barriers to entry that explain the existence of monopoly?

3. What is the relationship between economies of scale and a natural monopoly?

4. Some economists argue that pure monopolists will purposely avoid the price-output combination that will maximize their profits. Explain how this less-than-maximum profit behavior could be rational.

5. In what ways, if any, do the demand schedules for a purely competitive firm and a pure monopolist differ? What significance does this have for the price-output behavior of each?

6. Why
Is the profitability of a firm’s operation a good index of the degree of monopoly power it possesses?

14. Do you agree or disagree with the statement that: “A monopolist always charges the highest possible price.” Explain.

15. “Pure monopoly guarantees economic profits.” Discuss whether this is a valid statement.

16. How does monopoly compare with pure competition in terms of price, output, and efficiency?

17. Explain how monopoly causes an inefficient allocation of resources when the competitive firm does not, even when both seek to maximize profits.

18. How does monopoly result in income transfers?

19. How does simultaneous consumption affect economies of scale?

20. What are network effects? How do they contribute to economies of scale?

21. What is X-inefficiency? Why is it likely to occur in monopoly?

22. Draw a graph that illustrates X-inefficiency. Explain the concept of X-inefficiency using the graph.

23. What is the relationship between rent-seeking expenditures and monopoly?

24. What are three policy options for dealing with pure monopolies that are entrenched and inefficient?

25. Price discrimination is often used by businesses. Explain the conditions under which price discrimination is practiced and the economic consequences of price