Deck 7: Monopoly

Question 1

On what factors does market power depend?

A) Limiting competition.
B) Making demand less price elastic.
C) Seller being a monopoly.
D) a and b.
E) a, b, and c.

Answer 1

D

Question 2

Consider the sources of market power - product differentiation, intellectual property, economies of scale and scope, and regulation. Which contribute to market power by limiting competition?

A) Product differentiation.
B) Intellectual property.
C) Economies of scale and scope.
D) a and b.
E) b and c.

Answer 2

E

Question 3

If the demand is more price elastic, how would that affect the difference between the price and marginal revenue?

A) The difference between the price and marginal revenue would be smaller.
B) The difference between the price and marginal revenue would be larger.
C) The difference between the price and marginal revenue could be smaller or larger, depending on the demand curve.

Answer 3

A

Question 4

Suppose that Luna's patent on a drug has expired and generic manufacturers now produce cheaper versions. The demand has become more price elastic. How should Luna adjust the price?

A) Reduce the price.
B) Increase the price.
C) Reduce the price according to the new marginal revenue and marginal cost.
D) Increase the price according to the new marginal revenue and marginal cost.

Question 5

A game producer must pay an annual lump-sum royalty to the original creators of the game. In the most recent contract, the producer agreed to increase the royalty by $10 million. How should it adjust production and price?

A) It should increase the price.
B) If it produces, it should not adjust production or price.
C) It should check whether it will break even.
D) Both a and b.
E) Both b and c.

Question 6

Solis pays a percentage of revenues as license fee for patented technology that it uses in manufacturing mobile phones. If the patent owner raises the percentage license fee, how should Solis adjust the price of the phones?

A) Reduce the price.
B) Increase the price.
C) Reduce the price according to the new marginal revenue and marginal cost.
D) Increase the price according to the new marginal revenue and marginal cost.

Question 7

With changes in advertising technology, the advertising elasticity of the demand for your product has increased. How should you adjust advertising?

A) Reduce advertising.
B) Reduce advertising according to the advertising elasticity of demand and incremental margin percentage.
C) Increase advertising.
D) Increase advertising according to the advertising elasticity of demand and incremental margin percentage.

Question 8

Explain why a firm should adjust R&D expenditure with changes in its incremental margin percentage.

A) If the incremental margin percentage is higher, the return to an increase in R&D expenditure would be higher.
B) R&D expenditure affects the incremental margin percentage.
C) The incremental margin percentage affects R&D expenditure.
D) All of the above.

Question 9

Consider a music publisher which has a large share of the world market. It commissions performers to produce music and sells recordings to consumers. In which markets does the publisher have market power?

A) The publisher has market power in the markets for performance and recorded music.
B) The publisher has monopsony power in the market for performance and monopoly power in the market for recorded music.
C) The publisher has monopoly power in the market for performance and monopsony power in the market for recorded music.
D) None of the above.

Question 10

A soybean processor has monopsony power over farmers. To maximize profit, how should it adjust purchases relative to the competitive level?

A) It should depress purchases below the equilibrium of perfect competition.
B) It should purchase the quantity where marginal revenue equals marginal cost.
C) It should purchase the quantity where marginal benefit equals marginal expenditure.
D) None of the above.

Question 11

Explain why market power depends on both limiting competition and making demand less price elastic.

Question 12

Consider the sources of market power - product differentiation, intellectual property, economies of scale and scope, and regulation. Which contribute to market power by limiting competition and which by making demand less price elastic?

Question 13

If the demand is more price elastic, how would that affect the difference between the price and marginal revenue?

Question 14

Suppose that Luna's patent on a drug has expired and generic manufacturers now produce cheaper versions. The demand has become more price elastic. How should Luna adjust production and price?

Question 15

A game producer must pay an annual lump-sum royalty to the original creators of the game. In the most recent contract, the producer agreed to increase the royalty by $10 million. How should it adjust production and price?

Question 16

Solis pays a percentage of revenues as license fee for patented technology that it uses in manufacturing mobile phones. If the patent owner raises the percentage license fee, how should Solis adjust the price of the phones?

Question 17

With changes in advertising technology, the advertising elasticity of the demand for your product has increased. How should you adjust advertising?

Question 18

Explain why a firm should adjust R&D expenditure with changes in its incremental margin percentage.

Question 19

Consider a music publisher which has a large share of the world market. It commissions performers to produce music and sells recordings to consumers. In which markets does the publisher have market power?

Question 20

A soybean processor has monopsony power over farmers. To maximize profit, how should it adjust purchases relative to the competitive level?