Deck 11: Monopoly

Question 1

The principal difference between economic profits for a monopolist and for a competitive firm is that

A)monopoly profits create major problems of equity whereas competitive profits do not.
B)competitive profits exist only in the short run whereas monopoly profits may exist in the long run as well.
C)monopoly profits represent a transfer out of consumer surplus whereas competitive profits do not.monopoly profits are considered a deadweight loss but competitive profits are not.
D)monopoly profits are considered a deadweight loss but competitive profits are not.

Answer 1

competitive profits exist only in the short run whereas monopoly profits may exist in the long run as well.

Question 2

A natural monopoly

A)is a monopoly in the production of raw materials.
B)occurs when one firm can supply the entire market more cheaply than can a number of firms.
C)is one result of a patent.
D)results from decreasing returns to scale.

Answer 2

occurs when one firm can supply the entire market more cheaply than can a number of firms.

Question 3

From the point of view of economic efficiency,output in a monopolized market is

A)too high.
B)perfect.
C)too low.
D)undesirable.

Answer 3

too low.

Question 4

All monopolies exist because of

A)firms' desire to maximize profits.
B)failure of antitrust laws.
C)barriers to entry.
D)natural selection.

Question 5

Which of the following is not a technical barrier to entry in a monopolized market?

A)A patent.
B)Decreasing average cost.
C)A low cost method of production known only by monopolist.
D)Increasing returns to scale.

Question 6

A profit-maximizing monopoly will produce that output for which

A)marginal revenue equals price.
B)average cost is minimized.
C)marginal cost is minimized.
D)marginal cost equals marginal revenue.

Question 7

The supply curve for a monopoly is given by

A)the firm's marginal cost curve above the average variable cost curve.
B)the one point on the demand curve that corresponds to the quantity for which price is equal to marginal cost.
C)the entire demand curve above the point where price is equal to average cost.
D)the monopolist does not have a well-defined supply curve.

Question 8

Which might be a possible reason a cable television operator want to bundle channels together in packages ("tiers")?

A)delivering many channels to the consumer is not much more costly than delivering a few.
B)simplifies the consumer's choice and perhaps lowers administrative costs.
C)allows the firm to extract revenue from a consumer even if it does not know exactly which channels the consumer likes the most..
D)all of the above.

Question 9

A monopoly's economic profits are represented by

A)[price minus marginal cost] times number of units sold.
B)[price minus average cost] times number of units sold.
C)[marginal revenue minus price] times number of units sold.
D)[marginal cost minus price] times number of units sold.

Question 10

Consider the same monopoly situation as in the previous question. The deadweight loss (compared to a single firm behaving as if it were perfectly competitive)is about

A)667
B)333
C)1,000
D)1,333

Question 11

Consider the same monopoly situation as in the previous question.The firm's profit will be

A)1,760
B)1,660
C)2,264
D)6,728

Question 12

Which of the following is not a legal barrier to entry in a monopolized market?

A)A patent.
B)An exclusive franchise.
C)Decreasing average cost.
D)An exclusive license.

Question 13

Which is not an example of price discriminating by separating markets?

A)offering discounts for students with IDs.
B)charging lower prices for airline tickets with a Saturday stay-over.
C)selling 13 bagels (a "baker's dozen") for the price of 12.
D)selling snowblowers at a discount in relatively warmer climates.

Question 14

A monopolist with constant average and marginal cost equal to 8 (AC = MC = 8)faces demand Q = 100 - P,implying that its marginal revenue is MR = 100 - 2Q. Its profit maximizing quantity is

A)8
B)46
C)50
D)92

Question 15

The Soup Nut serves his signature minestrone soup in two different bowl sizes,large and small.What strategy should he use to extract the most surplus possible out of customers who come in two types,regular and big eaters,when he cannot distinguish between the two types by observation?

A)Distort the size of the small bowl downward to make it less attractive to the big eaters,allowing him to raise the price of the large bowl.
B)Distort the size of the large bowl downward to make it attractive to both big and regular eaters.
C)Distort the size of the small bowl upward to make it harder for regular eaters to separate themselves from big eaters.
D)Distort the size of the large bowl upward to make big eaters less likely to consume the small bowl.

Question 16

A monopolist has total cost TC = .1Q² - 2Q + 100 and marginal cost MC = .2Q - 2. Market demand is Q = 86 - P,implying that the firm's marginal revenue is MR = 86 - 2Q. Its profit-maximizing output is

A)92
B)46
C)40
D)20

Question 17

Consider the same monopoly situation as in the previous question. The monopoly price is

A)8
B)46
C)54
D)92

Question 18

If a monopoly is maximizing profits,

A)price will always be greater than the elasticity of demand.
B)price will always equal marginal cost.
C)price will always be greater than marginal cost.
D)price will always equal marginal revenue.

Question 19

A monopolist has total cost TC = Q² + 10Q + 100 and marginal cost MC = 2Q + 10. It faces demand Q = 130- P (so its marginal revenue is MR = 130 - 2Q). Its profit-maximizing output

A)30
B)25
C)20
D)10

Question 20

Consider the same monopoly situation as in the previous question. The deadweight loss associated with this monopoly is

A)966
B)1,058
C)2,484
D)3,680

Question 21

All of the following might explain a firm offering quantity discounts except:

A)lower costs of handling large orders.
B)an inelastic demand for the good.
C)monopoly power in this market.
D)existence of some high and some low demand consumers.

Question 22

Perfect price discrimination

A)is a common occurrence in situations with many buyers.
B)occurs fairly often in situations with only a few buyers.
C)is only observed in competitive markets.
D)rarely occurs because firms do not have sufficient power to differentiate among specific buyers.

Question 23

The "deadweight loss" from a monopoly refers to

A)the portion of a monopolist's profits that are above the competitive profit level.
B)the increase in price due to the monopolization of a market.
C)the inefficient use of factors of production by a monopoly.
D)the loss of consumer surplus due to the monopolization of a market that is not transferred to another economic actor.

Question 24

Possible benefits of a monopoly include which of the following (choose all that apply)?

A)a savings of fixed costs because only one firm supplies quantity demanded.
B)greater opportunities for research due to long-run positive economic profits.
C)government regulation is more effective because the firm is "too big to fail."
D)goods and services are provided at a lower price than under perfect competition because of a monopoly's decreasing average cost curve.

Question 25

For the practice of price discrimination to be successful,the monopoly must

A)face an imperfect resale market for its product.
B)face similar demand curves for various markets.
C)have similar costs among markets.
D)have a downward sloping marginal cost curve.

Question 26

A price-discriminating monopolist having identical costs in two markets should charge a higher price in that market

A)which has a higher demand.
B)which has a more elastic demand.
C)which has a less elastic demand.
D)which has a higher marginal revenue.

Question 27

If the government requires a natural monopoly to price at marginal cost,

A)monopoly firms will earn zero economic profits because the price of the good equals the cost of producing that good.
B)monopoly firms will operate at a loss because P < AC.
C)more firms will be able to enter the market.
D)producer surplus will increase because quantity supplied is greater.