Book cover for Principles of Microeconomics for AP® Courses

Principles of Microeconomics for AP® Courses

Steven A. Greenlaw, David Shapiro, Timothy Taylor

ISBN #9781947172449

2nd Edition

707 Questions

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Homework Questions

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Summary
Learning Objectives
Key Concepts
Example Problems
Explanations
Common Mistakes

Summary

This chapter emphasizes the formation and operation of monopolies, focusing on the barriers to entry that protect them and the methods they use to maximize profits. Key principles include the role of economies of scale in natural monopolies, the impact of legal protections in establishing lawful monopolies, and the significance of marginal analysis (comparing marginal revenue and marginal cost) in determining the optimal output level. Additionally, monopolies often lead to allocative inefficiency and reduced innovation incentives, which have far-reaching economic and social implications.

Learning Objectives

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Key Concepts

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Example Problems

Example 1

Classify the following as a government-enforced barrier to entry, a barrier to entry that is not governmentenforced, or a situation that does not involve a barrier to entry. a. A patented invention b. A popular but easily copied restaurant recipe c. An industry where economies of scale are very small compared to the size of demand in the market d. A well-established reputation for slashing prices in response to new entry e. A well-respected brand name that has been carefully built up over many years

Example 2

Classify the following as a government-enforced barrier to entry, a barrier to entry that is not governmentenforced, or a situation that does not involve a barrier to entry. a. A city passes a law on how many licenses it will issue for taxicabs b. A city passes a law that all taxicab drivers must pass a driving safety test and have insurance c. A well-known trademark d. Owning a spring that offers very pure water e. An industry where economies of scale are very large compared to the size of demand in the market

Example 3

Suppose the local electrical utility, a legal monopoly based on economies of scale, was split into four firms of equal size, with the idea that eliminating the monopoly would promote competitive pricing of electricity. What do you anticipate would happen to prices?

Example 4

If Congress reduced the period of patent protection from 20 years to 10 years, what would likely happen to the amount of private research and development?

Example 5

Suppose demand for a monopoly’s product falls so that its profit-maximizing price is below average variable cost. How much output should the firm supply? Hint: Draw the graph.
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Step-by-Step Explanations

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Common Mistakes

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