Microeconomics Post-Quiz 5

question

What are natural barriers to entry?

answer

1) Control of resources (Alcoa owns Bauxite)
2) Problems raising capital (Microsoft and Apple)
3) Economies of Scale (Hard to compete with large companies due to large ATC) (ie Walmart)

question

What are government created barriers to entry?

answer

1) Licensing: saying only one company can operate in a particular area
2) Patents/Copyright law: Gives a monopoly to a company

question

Do natural or government barriers to entry persist more?

answer

Government barriers tend to persist more than natural barriers

question

What are the problems with Monopolies?

answer

1) They produce at an inefficient output and price
2) Fewer choices for consumers
3) Rent Seeking

question

Rent Seeking

answer

When monopolies try to get the government to guarantee their monopoly. They will then compete in government instead of the market
Ex: Taxi cabs in cities

question

What are solutions to monopolies?

answer

1) Break up monopolies
2) Reduce Trade Barriers (Force monopolies to compete internationally)
3) Regulation (trying to mandate an efficient price) (hard in reality to determine)

question

What are the problems with the government breaking up monopolies?

answer

1)It is hard to do in practice and make binding.
2) Some industries like Boeing may function better at larger capacities because that's how costs are minimized

question

Price Discrimination

answer

Occurs when a firm sells the same good at two different prices to two different groups of customers.
Ex: Movie theater tickets, Early bird specials, etc

question

Requirements for Price Discrimination

answer

1) Must be able to distinguish between groups (groups cannot overlap and have differing willingness to pay)
2) Must be able to prevent resale

question

Perfect Price Discrimination

answer

A situation in which each customer is charged whatever value they place on a particular good.
Does not work in practice

question

What happens to profit and DWL as a company is able to charge more different prices to different groups?

answer

Profit increases and DWL decreases

1 of 11

question

What are natural barriers to entry?

answer

1) Control of resources (Alcoa owns Bauxite)
2) Problems raising capital (Microsoft and Apple)
3) Economies of Scale (Hard to compete with large companies due to large ATC) (ie Walmart)

question

What are government created barriers to entry?

answer

1) Licensing: saying only one company can operate in a particular area
2) Patents/Copyright law: Gives a monopoly to a company

question

Do natural or government barriers to entry persist more?

answer

Government barriers tend to persist more than natural barriers

question

What are the problems with Monopolies?

answer

1) They produce at an inefficient output and price
2) Fewer choices for consumers
3) Rent Seeking

question

Rent Seeking

answer

When monopolies try to get the government to guarantee their monopoly. They will then compete in government instead of the market
Ex: Taxi cabs in cities

question

What are solutions to monopolies?

answer

1) Break up monopolies
2) Reduce Trade Barriers (Force monopolies to compete internationally)
3) Regulation (trying to mandate an efficient price) (hard in reality to determine)

question

What are the problems with the government breaking up monopolies?

answer

1)It is hard to do in practice and make binding.
2) Some industries like Boeing may function better at larger capacities because that's how costs are minimized

question

Price Discrimination

answer

Occurs when a firm sells the same good at two different prices to two different groups of customers.
Ex: Movie theater tickets, Early bird specials, etc

question

Requirements for Price Discrimination

answer

1) Must be able to distinguish between groups (groups cannot overlap and have differing willingness to pay)
2) Must be able to prevent resale

question

Perfect Price Discrimination

answer

A situation in which each customer is charged whatever value they place on a particular good.
Does not work in practice

question

What happens to profit and DWL as a company is able to charge more different prices to different groups?

answer

Profit increases and DWL decreases

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Microeconomics Post-Quiz 5

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