1. Monopoly is characterized by 1) One seller 2) Complete barriers to entry 3) A
ID: 1140669 • Letter: 1
Question
1. Monopoly is characterized by 1) One seller 2) Complete barriers to entry 3) Ability to set prices
True or False ?
2. Market power relates to the ability of sellers to affect consumer preferences, and it arises because of increased abilities of monopolies to advertise.
True or False?
3. An example of an industry or service that is a natural monopoly is:
a) Landscaping
b) Carpet cleaning
c) Electricity generation
4. Alex knows a lot of people who do not like Vegemite. He says that Vegemite is so unpopular that Bega, the company that manufactures it, cannot possibly have any monopoly power. Do you agree?
a) No, producing Vegemite requires low fixed cost, so it is likely a regulate natural monopoly that has market power.
b) No, monopoly power is based on whether a good has any close substitute, not whether your friend likes the product
c) Yes, if a good is not widely liked by consumers, the producer does not have a monopoly in that good.
Explanation / Answer
a) "True"
A monopoly is the only seller in the market and they can set their price and have barriers to entry.
b) "False"
The advertisement has nothing to do with market power in a monopoly.
c) "C"
Electricity generating companies have a natural monopoly.
d) "B" no, monopoly power is based on whether a good has any close substitute, not on how much they are liked.
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