Deck 9: Market Power and Monopoly

Question 1

A firm can produce any quantity of good X with the following cost structure: TC = 450,000 + 20Q, where Q measures units of output. The industry demand for good X is Q = 100,000 - 500P. At the profit-maximizing output level, the firm's ATC of production is $____.

A) 50
B) 40
C) 30
D) 20

Answer 1

C

Question 2

(Figure: Profit-maximizing Quantity and Price I) The profit-maximizing quantity and price are _____ and _____, respectively.

A) 6 units; $6
B) 10 units; $8
C) 14 units; $4
D) 6 units; $12

Answer 2

D

Question 3

Suppose a firm faces the inverse demand curve . The firm has the total cost curve
) The firm's profit-maximizing output is Q = ____.

A) 2.07
B) 1.09
C) 0.09
D) 0.02

Answer 3

C

Question 4

(Figure: Natural Monopolist I) If the government regulates the price of this natural monopolist to achieve a perfectly competitive output level, the regulated price will be:

A) $8.15.
B) $14.
C) $10.
D) $6.30.

Question 5

Suppose chocolate-covered prunes have a demand curve that can be expressed as and the monopolist that produces them has a total cost curve of
, where Q is output. The profit-maximizing level of output is Q = ____.

A) 9.54
B) 8.43
C) 7.14
D) 5.71

Question 6

(Figure: Natural Monopolist I) If the government regulates the price of this natural monopolist to achieve a perfectly competitive output level, consumer surplus will change from _____ to _____.

A) $3,000; $2,500
B) $15,000; $75,350
C) $15,000; $55,813
D) $17,000; $54,600

Question 7

A medical device manufacturer sells its sterilization equipment in a market with an inverse demand curve of P = 6,000 - 400Q, where Q measures the number of sterilizers in thousands and P is the price per unit. The marginal cost of production is constant at $4,000. The profit-maximizing price is $____.

A) 7,000
B) 6,000
C) 5,000
D) 4,000

Question 8

Suppose a firm faces the demand curve Q = 8,000 - 20P. The marginal revenue for the firm is MR(Q) = ____.

A) 400 - 0.2Q
B) 400 - 10Q
C) 400 - 0.1Q
D) 4,000 - 0.1Q

Question 9

Suppose that market demand is Q = 660 - 12P and marginal cost is MC = 5. The producer surplus in a perfectly competitive market is $____, while the producer surplus in a monopoly market is $ ___.

A) 0; 3,750
B) 0; 7,500
C) 0; 15,000
D) 5,000; 3,750

Question 10

(Figure: Marginal Revenue Curve I) What is the equation for this firm's marginal revenue curve?

A) MR = 6
B) MR = 18 - 3Q
C) MR = 18 - 1.5Q
D) MR = 12 - 0.5Q

Question 11

A product's demand curve can be expressed as Q = 100 - 2P and total cost is TC = Q². The firm's profit-maximization problem is:

A) .
B) .
C) .
D) .

Question 12

Suppose a firm faces the inverse demand curve . The firm has the total cost curve
) Assuming that the firm operates in the market, the firm's profit maximizing output is Q = ____.

A) 40.42
B) 42.76
C) 44.78
D) 46.32

Question 13

Suppose a firm faces the demand curve Q = 16P^-2. The marginal revenue for the firm is MR(Q) = ____.

A) Q^-0.5
B) Q^0.5
C) 2Q^-0.5
D) 2Q^0.5

Question 14

Market power arises from:

A) the entry of new firms to an industry in which the firms are earning large producer surplus.
B) barriers to entry.
C) diseconomies of scale.
D) diminishing marginal returns.

Question 15

For a monopoly, marginal revenue equals:

A) the gain from selling an additional unit at the market price less the loss in revenue from lowering the price on the previous units.
B) ΔP/ΔQ + P.
C) P + (ΔQ/ΔP)Q.
D) Q + (ΔP/ΔQ)P.

Question 16

Suppose the demand curve for a firm is Q = 50 - 0.125P, where Q measures units of output and P is the price per unit. The value of marginal revenue at 5 units of output is $____.

A) 400
B) 360
C) 320
D) 240

Question 17

Use the following table, assuming each customer buys only 1 unit, to complete the following.
By lowering the price from $65 to $60, the marginal revenue is $____.

A) 55
B) 45
C) 65
D) 5

Question 18

Suppose a firm faces the demand curve . The marginal revenue for the firm is MR(Q) = ____.

A) (0.5)Q^-0.5
B) (0.5)Q^0.5
C) 2Q^-0.5
D) 2Q^0.5

Question 19

A new product has a demand curve that can be expressed as and the monopolist that produces it has a total cost curve of
Where Q is output. Assuming the firm maximizes its profits, it will charge a price P = ____.

A) 85.72
B) 74.43
C) 62.35
D) 60.36

Question 20

(Figure: Profit-maximizing Quantity and Price V) The levels of producer surplus under monopoly and perfect competition are _____ and _____, respectively.

A) $800; $0
B) $1,200; $0
C) $800; $400
D) $600; $200

Question 21

Mobile phone portability allows consumers to retain their phone number if they change to a different phone network, which will tend to:

A) increase barriers to entry in the phone industry.
B) discourage product differentiation and increase switching costs.
C) encourage the formation of natural monopolies.
D) reduce market power in the phone industry.

Question 22

The inverse demand for a drug that treats melanoma (a skin cancer) is given by P = 3,000 - 10Q, where Q measures the number of drug treatments and P is the price per treatment. Suppose that the marginal cost per drug treatment is constant at $10. What is the profit-maximizing price per drug treatment?

A) $2,000
B) $1,505
C) $300
D) $2,900

Question 23

Suppose a firm lowers its price to $10, raising the quantity sold from 4 to 5 units. If the marginal revenue of the fifth unit is $2, the firm must have lowered its price by:

A) $8.
B) $2.
C) $4.
D) $10.

Question 24

Which of the following statements is (are) TRUE?
I) A firm with market power maximizes profit by producing so that P = MC or MR = MC.
II) If marginal revenue exceeds marginal cost, the firm should expand output to increase profits.
III) If a firm has no costs of production, it should continue producing until marginal revenue falls to zero.

A) I
B) II and III
C) II
D) I, II, and III

Question 25

(Figure: Market for Wine Gift Baskets I) Zinfandelic, which sells wine gift baskets, faces the demand curve and marginal cost curve depicted in the graph. The profit-maximizing quantity for Zinfandelic is ____.

A) 50
B) 40
C) 30
D) 25

Question 26

Suppose that a monopolist's inverse demand curve can be expressed as: P = 20,000 - Q².
The monopolist's total cost curve is: TC = 8,000Q.
The monopolist's profit-maximizing level of output is Q = ____.

A) 63.25
B) 37.46
C) 22.64
D) 16.67

Question 27

Suppose a firm faces the demand curve Q = 2,000 - 5P. The marginal revenue for the firm is MR(Q) = ____.

A) 400 - 0.2Q
B) 400 - 10Q
C) 400 - 0.4Q
D) 4,000 - 0.1Q

Question 28

Which of the following statements is (are) TRUE?
I) A natural monopoly owes its existence to economies of scale.
II) In contrast to a monopoly industry, industries served by natural monopolies have no barriers to entry.
III) Natural monopolies have cost structures characterized by small fixed costs and steeply rising marginal costs.

A) I and II
B) I
C) III
D) II and III

Question 29

Market conditions change for a monopolist with an original marginal cost of MC = 5 + 10Q. The inverse demand curve rotates from P = 40 - 5Q to P = 47 - 2Q. What happens to the profit-maximizing price following the rotation of the demand curve?

A) The price falls from $18 to $15.
B) The price rises from $31.25 to $41.
C) The price rises from $26 to $34.
D) The price falls from $18.60 to $11.20.

Question 30

In Louisiana, it was a crime to sell burial caskets without a funeral director's license. This law was a source of _____ for licensed funeral directors and an example of _____.

A) market power; a government-sanctioned barrier to entry
B) market power; a natural monopoly
C) product differentiation; scale economies
D) scale economies; a natural monopoly

Question 31

A monopolist with a marginal cost of MC = 20Q faces the inverse demand curve P = 90 - 5Q. The profit-maximizing quantity is _____.

A) 1
B) 2
C) 3
D) 4

Question 32

Suppose a product's demand curve can be expressed as Q = 200 - 10P. Marginal revenue is:

A) 200 - 20P.
B) 20 - P.
C) 20 - 0.2P.
D) 20 - 0.1P.

Question 33

(Table: Total and Marginal Revenue II) Use the table to answer the question. At a price of $8, the total revenue is $____.

A) 12
B) 8
C) 4
D) 0

Question 34

A firm that can affect the price of its product:

A) faces a downward-sloping demand curve.
B) has no demand curve (i.e., the relationship between price and quantity demanded breaks down).
C) has a perfectly elastic demand curve.
D) can sell whatever quantity it produces without changing its price.

Question 35

The following expressions are equal to marginal revenue in the case of profit maximization EXCEPT:

A) .
B) .
C) .
D) .

Question 36

Suppose the American Girl doll company has an inverse demand curve of P = 150 - 0.25Q, where Q measures the quantity of dolls per day and P is the price per doll. The marginal cost is given by MC = 10 + 0.50Q. What is the total surplus at the profit-maximizing output level?

A) $144,000
B) $12,250
C) $18,120
D) $4,500

Question 37

Consider a firm in a perfectly competitive market with total costs given by: This firm's marginal cost function is MC(Q) = ____.

A) 3Q² - 2Q + 2
B) 3Q³ - 2Q² + 2Q + 100
C) 6Q - 2
D) 100

Question 38

A drug company produces a new drug to treat baldness. The inverse demand curve for the drug is P = 205 - 20Q, where Q measures the number of pills in millions. The various costs of production are given by TC = 100 + 5Q, ATC = 5 + 100/Q, and MC = 5. If the government grants this firm a patent, it will earn profits of _____. If the government revokes the patent and the firm must sell its drug at marginal cost because of competition, it will earn profits or losses of _____.

A) $600 million; $500,000
B) $2 billion; $0
C) $400 million; -$100 million
D) $70 million; -$25 million

Question 39

Firm A has price elasticity of demand of -1.5 and a marginal cost of $30. Firm B has a price elasticity of demand of -2.0 and a marginal cost of $30. The profit-maximizing price for Firm A is $____.

A) 100
B) 90
C) 70
D) 60

Question 40

At the profit-maximizing quantity, the firm's marginal cost is $40 and it charges a price of $60. What is the price elasticity of demand at the profit-maximizing quantity?

A) -0.67
B) -1.5
C) -3
D) -0.5

Question 41

Suppose a firm faces the inverse demand curve . The firm has the total cost curve
) Assuming that the firm operates in the market and maximizes profit, it will earn a profit of $ ____.

A) 2,763.43
B) -2,763.43
C) -6,982,63
D) -12,198.61

Question 42

Use the following table, assuming each customer buys only 1 unit, to complete the following.
By lowering the price from $70 to $65, the marginal revenue is $____.

A) 55
B) 70
C) 65
D) 5

Question 43

(Figure: Market for Wine Gift Baskets I) Zinfandelic, which sells wine gift baskets, faces the demand curve and marginal cost curve depicted in the graph. The price elasticity of demand at the profit-maximizing quantity for Zinfandelic is ____.

A) -1.4
B) 1.4
C) -0.4
D) 0.4

Question 44

(Figure: Profit-maximizing Quantity and Price V) The levels of consumer surplus under monopoly and perfect competition are _____ and _____, respectively.

A) $600; $2,400
B) $200; $400
C) $800; $3,200
D) $400; $1,600

Question 45

Suppose a firm's inverse demand curve is P = 150 - 5Q, its Lerner index is 0.875 at the profit-maximizing quantity, and its marginal cost is constant at $10. The profit-maximizing quantity is ____.

A) 24
B) 20
C) 14
D) 0

Question 46

(Table: Total and Marginal Revenue II) Use the table to answer the question. The marginal revenue of changing from a quantity of 2 to 3 is $____.

A) 12
B) 8
C) 4
D) 0

Question 47

Suppose the demand curve for a firm is Q = 50 - 0.125P, where Q measures units of output and P is the price per unit. The value of marginal revenue at 20 units of output is $____.

A) 240
B) 200
C) 160
D) 80

Question 48

(Figure: Profit-maximizing Quantity and Price VI) Which of the following statements is (are) TRUE? I. The deadweight loss owing to market power is $225.
II) The price under perfect competition is $10.
III) Consumer surplus under perfect competition is higher than under monopoly by $337.50.

A) I, II, and III
B) II and III
C) III
D) II

Question 49

Suppose a firm faces the inverse demand curve . The firm has the total cost curve
) Assuming the firm is maximizing profit, it will charge a price P = ____.

A) 2,666.67
B) 1,999,98
C) 1,666.68
D) 1,222.34

Question 50

(Figure: Profit-maximizing Quantity and Price IV) What happens to the profit-maximizing price and quantity following the change in the demand curve from D₁ to D₂?

A) The price rises from $5 to approximately $5.75, and the output decreases from 300 to approximately 250 units.
B) The price falls from $4.50 to $3, and the output increases from 300 to 500 units.
C) The price falls from $5 to approximately $4, and the output increases from 300 to approximately 333 units.
D) The price rises from approximately $4 to $5, and the output remains unchanged at 300 units.

Question 51

Suppose a firm faces the demand curve Q = 400 - P. The marginal revenue for the firm is MR(Q) = ____.

A) 400 - 0.2Q
B) 400 - 2Q
C) 400 - 0.4Q
D) 4,000 - 0.1Q

Question 52

A product's demand curve can be expressed as Q = 100 - P and total cost is TC = 10Q². The firm's profit-maximization problem is:

A) .
B) .
C) .
D) .

Question 53

Suppose that a monopolist's inverse demand curve can be expressed as: P = 20,000 - Q².
The monopolist's total cost curve is: TC = 8,000Q.
The price the monopolist charges to maximize profit is P = ____.

A) 15,999.44
B) 12,342.32
C) 10,111.21
D) 8,888.11

Question 54

Suppose that each firm in an industry has a total cost curve given by TC = 7,000 + 50Q. The lowest average total cost of producing 1,000 units of output occurs when:

A) two firms each produce 500 units of output.
B) one firm produces all 1,000 units of output.
C) four firms each produce 250 units of output.
D) 10 firms each produce 100 units of output.

Question 55

Rent-seeking refers to:

A) the costly actions that firms undertake in their attempt to receive monopoly privilege from the government.
B) the government's attempt to limit collusive price setting by industrial groups.
C) the ability of some landlords to charge above competitive rental rates.
D) any illegal activity designed to increase a firm's market power.

Question 56

(Table: Total and Marginal Revenue II) Use the table to answer the question. The marginal revenue of changing from a quantity of 1 to 2 is $____.

A) 12
B) 8
C) 4
D) 0

Question 57

Bubba Golf, a manufacturer of golf clubs, can sell 3 drivers at $600 each. To sell 4 drivers, Bubba Golf must lower the price to $580 each. The marginal revenue of the fourth club is:

A) $20.
B) $60.
C) $580.
D) $520.

Question 58

Consider a firm in a perfectly competitive market with total costs given by: Assuming the price is equal to $23, this firm maximizes profit by producing a quantity of Q = ____.

A) 63.25
B) 37.46
C) 22.64
D) 16.67

Question 59

(Table: Total and Marginal Revenue II) Use the table to answer the question. At a price of $6, the total revenue is $____.

A) 12
B) 8
C) 4
D) 0

Question 60

Suppose that market demand is Q = 660 - 12P and marginal cost is MC = 5. The consumer surplus in a perfectly competitive market is $____, while the consumer surplus in a monopoly market is $ ___.

A) 15,000; 3,750
B) 15,000; 7,500
C) 0; 7,500
D) 5,000; 3,750

Question 61

(Figure: Profit-maximizing Quantity and Price III) What happens to the firm's profit-maximizing price and quantity following the increase in demand from D₁ to D₂?

A) The firm will increase the price to P₃ and sell Q₁ units of output.
B) The firm will raise the price from P₂ to less than P₃ and increase output from Q₁ to less than Q₂.
C) The firm will sell Q₂ units of output at a price of P₂.
D) The firm will reduce output from Q₃ to Q₂ and raise the price from P₂ to P₃.

Question 62

An amusement park faces a demand curve of Q = 40 - 0.4P and marginal cost of MC = 1.25Q, where Q is measured in thousands of customers. The amusement park's profit-maximizing output level is ____thousand.

A) 80
B) 70
C) 60
D) 50

Question 63

Research by Acemoglu and Linn, which examined pharmaceutical drug development, found that:

A) respondents would rather have a disease that afflicts a small number of people than a common one.
B) the larger the potential market, the likelier drug companies are to develop a drug for that market.
C) profits are not an important consideration for which drugs are developed.
D) pharmaceutical companies earn normal rates of return in the long run, despite considerable market power in the short run.

Question 64

A medical device manufacturer sells its sterilization equipment in a market with an inverse demand curve of P = 6,000 - 400Q, where Q measures the number of sterilizers in thousands and P is the price per unit. Suppose the Patient Protection and Affordable Care Act levies a tax on medical devices. Assume the tax raises the marginal cost of production from $4,000 to $4,400. After the tax, the profit-maximizing price ____ by $____.

A) increases; 200
B) decreases; 200
C) increases; 100
D) decreases; 100

Question 65

A firm's demand curve is Q = 2 - 0.01P, where Q is measured in millions. The firm's marginal revenue when output is Q = 0.50 is $____.

A) 200
B) 150
C) 125
D) 100

Question 66

A profit-maximizing monopolist is selling 20,000 units of output at $1,400 per unit. The marginal cost of production is constant at $600. What happens if marginal cost rises to $680?

A) The monopolist will increase the price by less than $80 and sell fewer than 20,000 units of output.
B) The monopolist will increase the price to $1,480 and sell 20,000 units of output.
C) Because the monopolist is already maximizing profit, the increase in marginal cost will have no effect on the price or quantity produced.
D) The monopolist will keep the price unchanged but sell more than 20,000 units of output to make up for higher costs of production.

Question 67

Suppose that a firm produces where MR = MC. To guarantee that the firm is maximizing its profit, confirm that the _____ derivative of the profit function is _____.

A) first; positive
B) first; negative
C) second; positive
D) second; negative

Question 68

Consider the demand curves facing two firms: For curve 1, a $4 decrease in price increases quantity demanded by 2 units. For curve 2, a $3 decrease in price increases quantity demanded by 1 unit. Curve _____ is steeper, so an expansion of output drives down marginal revenue more along _____.

A) 2; curve 2 than curve 1
B) 2; curve 1 than curve 2
C) 1; curve 1 than curve 2
D) 1; curve 2 than curve 1

Question 69

A firm with market power has an inverse demand curve of P = 450 - 5Q and marginal cost of MC = 40Q, where Q is measured in thousands. What is the deadweight loss from market power at the firm's profit-maximizing output level?

A) $15,000
B) $280,000
C) $22,500
D) $9,400

Question 70

As Southwest Airlines began operating at various airports around the country:

A) prices at those airports decreased and the number of passengers using them increased dramatically.
B) market power became more concentrated, leading to higher fares and fewer flights.
C) consumer surplus and the deadweight loss increased.
D) consumer surplus decreased and the deadweight loss increased.

Question 71

(Figure: Market for Wine Gift Baskets I) Zinfandelic, which sells wine gift baskets, faces the demand curve and marginal cost curve depicted in the graph. The profit-maximizing price for Zinfandelic is $____.

A) 80
B) 70
C) 60
D) 20

Question 72

A new product has a demand curve that can be expressed as and the monopolist that produces it has a total cost curve of
Where Q is output. The profit-maximizing level of output for this firm is Q = ____.

A) 9.54
B) 8.43
C) 7.14
D) 6.36

Question 73

The following are conditions for the profit maximization condition EXCEPT:

A) .
B) .
C) MR = MC.
D) TR = PQ.

Question 74

Suppose that a monopolist's inverse demand curve can be expressed as: P = 10,000 + 100Q - 10Q².
The monopolist's total cost curve is: TC = 5,000Q.
The price the monopolist charges to maximize profit is P = ____.

A) 15,999.44
B) 12,342.32
C) 10,111.21
D) 8,888.11

Question 75

Government encouragement of monopoly:

A) usually leads to lower prices and higher consumer surplus.
B) through patents causes higher consumer prices but encourages firms to innovate and bring new products to the market.
C) reduces the market power of regulated firms.
D) results in the regulated firm producing beyond the competitive output level.

Question 76

Antitrust laws:

A) encourage firms to work together on setting prices, market share, and output levels.
B) cannot be used to prevent the merger of two firms.
C) restrict firms from engaging in behaviors that make markets less competitive.
D) ensure that firms with market power are not penalized for colluding.

Question 77

Consider the following table for a monopolist to answer the question. The profit-maximizing quantity for the monopolist is ____.

A) 5
B) 6
C) 7
D) 8

Question 78

Suppose a firm faces the inverse demand curve . The firm has the total cost curve
) Assuming that the firm operates in the market and maximizes profit, it will charge a price P = ____.

A) 15,729
B) 17,367
C) 18,232
D) 19,365

Question 79

In a market served by a monopoly, the marginal cost is $60 and the price is $110. In a perfectly competitive market, the marginal cost is $60. If the marginal cost increased from $60 to $75, the monopoly would raise its price _____, and the price in the perfectly competitive market would _____.

A) by $75; increase to $75
B) to $115; remain unchanged at $60
C) by less than $15; increase to $75
D) by $15; increase by $15

Question 80

Market power occurs when a firm:

A) can sell additional units of output without lowering the price of its product.
B) must sell additional units of output at a constant marginal cost.
C) can influence the price of its product.
D) maximizes profit at the output level where P = MC.