### Tedext ### “A monopolist does not have a supply curve.”- Cost Curve

1.  The short-run average cost curve passes through the minimum point of the marginal cost curve.

2.  There are some situations in which fixed costs can be an important component of marginal costs.

3.  Short-run marginal costs are generally U-shaped, due to the fact that substitutability between fixed and variable inputs depends on the relative amounts of fixed and variable inputs.

4.  If marginal costs are  below average costs, then average costs are falling as output increases.

5.  In our terminology, it is only in the long-run that new firms can enter a market.

6.  In  the short run, a firm in a competitive market that is not covering its fixed costs may continue to operate, but will exit its market in the long run.  Why the difference?

7.  Why are isoquants convex when viewed from the origin of the graph?  Why are isocosts straight lines?

8.  To minimize my costs of producing a given quantity of output in the long run, explain why I will choose to use a mix that is determined by the tangency between that quantity isoquant and the lowest isocost line.

9.  In an isoquant/isocost diagram, there is no axis on which I can plot dollars that measure the price of an input.  If so, how can I possibly choose the mix of inputs that minimizes the total cost of producing a certain output?  What does this have to do with the slopes of isocost lines?

10.  I own two [fixed] plants and can within limits increase [decrease] a plant’s output by using more [[ess] of a variable input.  To minimize my total costs of a  given output I should allocate  the input between plants so  that both are operating at the same marginal cost.  Yes or no?

11.  Define returns to scale and explain why they are only a useful concept for long-run analysis.   What is  the relationship between returns to scale and the slope of a firm’s long-run average cost curve?

12.  If a firm has increasing returns to scale at all possible outputs, it will be a “natural monopoly.”  Explain.

13.  The assumptions that underlie a perfectly competitive market model are not perfectly realistic except for a small number of industries.  Why then do I use  them so often?

14.  Monopoly is a slippery word, because depending on the details and definitions either all markets are competitive or all markets have elements of monopoly.  Explain.

15.  “A monopolist does not have a supply curve.”  Why is this an important concept, and what is the difference from competitive sellers, who do have supply curves?

16.  Why does the monopolist’s marginal revenue curve lie below its demand curve?

17.  Define deadweight loss, explain why it does not exist in a competitive market and why a high monopoly price is not the same as a deadweight loss.

18.  Explain why a monopolist can possibly have incentives to innovate when it makes its gains by restricting output relative to a competitive market.

19.  Price discrimination is valuable  to a monopoly seller seller only if it can separate its customers by their elasticities of demand.

TRUE/FALSE AND EXPLAIN

1.  The short-run average cost curve passes through the minimum point of the marginal cost curve.

2.  There are some situations in which fixed costs can be an important  component of marginal costs.

3.  Short-run marginal costs are generally U-shaped, due to the fact that substitutability between fixed and variable inputs depends on the relative amounts of fixed and variable inputs.

4.  If marginal costs are  below average costs, then average costs are falling as output increases.

5.  In our terminology, it is only in the long-run that new firms can enter a market.

6.  In  the short run, a firm in a competitive market that is not covering its fixed costs may continue to operate, but will exit its market in the long run.  Why the difference?

7.  Why are isoquants convex when viewed from the origin of the graph?  Why are isocosts straight lines?

8.  To minimize my costs of producing a given quantity of output in the long run, explain why I will choose to use a mix that is determined by the tangency between that quantity isoquant and the lowest isocost line.

9.  In an isoquant/isocost diagram, there is no axis on which I measure the price of an input.  If so, how can I possibly choose the mix of inputs that minimizes the total cost of producing a certain output?  What does this have to do with the slopes of isocost lines?

10.  I own two [fixed] plants and can within limits increase [decrease] a plant’s output by using more [[ess] of a variable input.  To minimize my total costs of a  given output I should allocate  the input between plants so  that both are operating at the same marginal cost.  Yes or no?

11.  Define returns to scale and explain why they are only a useful concept for long-run analysis.   What is  the relationship between returns to scale and the slope of a firm’s long-run average cost curve?

12.  If a firm has increasing returns to scale at all possible outputs, it will be a “natural monopoly.”  Explain.

13.  The assumptions that underlie a perfectly competitive market model are not perfectly realistic except for a small number of industries.  Why then do I use  them so often?

14.  Monopoly is a slippery word, because depending on the details and definitions either all markets are competitive or all markets have elements of monopoly.  Explain.

15.  “A monopolist does not have a supply curve.”  Why is this an important concept, and what is the difference from competitive sellers, who do have supply curves?

16.  Why does the monopolist’s marginal revenue curve lie below its demand curve?

17.  Define deadweight loss, explain why it does not exist in a competitive market and why a high monopoly price is not the same as a deadweight loss.

18.  Explain why a monopolist can possibly have incentives to innovate when it makes its gains by restricting output relative to a competitive market.

19.  Price discrimination is valuable  to a monopoly seller seller only if it can separate its customers by their elasticities of demand.

20.  Explain the logic behind a cover charge that customers must pay in order to gain the right to purchase a monopolist’s product.

21.  Explain in general terms why an exchange between a seller whose opportunity cost is less than a buyer’s valuation of some good generates gains for  both of them.

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