Deck 17: Monopoly

Question 1

A firm's price-cost margin:

A) is the amount by which its price exceeds its marginal cost, expressed as a percentage of its price.
B) is the amount by which its marginal cost exceeds its average cost.
C) is the amount by which its average cost exceeds its marginal cost.
D) is the value of its profit.

Answer 1

is the amount by which its price exceeds its marginal cost, expressed as a percentage of its price.

Question 2

A firm has market power:

A) when it can profitably charge any price of its choosing.
B) when it is characterized as a price taker.
C) when it can profitably charge a price that is above its marginal cost.
D) only when it is the sole firm producing in a market.

Answer 2

when it can profitably charge a price that is above its marginal cost.

Question 3

Suppose Kate's Great Crete (KGC)has annual variable costs of VC = 30Q + 0.0025Q² and marginal costs of MC = 30 + 0.005Q,where Q is the number of cubic yards of concrete it produces per year.In addition,it has an avoidable fixed cost of $50,000 per year.KGC's demand function is Q^d = 20,000 - 400P.What is KGC's total cost function?

A) TC = 50,030 + 30.005Q + 0.0025Q²
B) TC = 50,000 + 50Q - 0.0025Q²
C) TC = 20,000 - 400P
D) TC = 50,000 + 30Q + 0.0025Q²

Answer 3

TC = 50,000 + 30Q + 0.0025Q²

Question 4

When a monopolist maximizes its profit by selling a positive amount:

A) its marginal revenue must equal its marginal cost at that quantity.
B) its marginal revenue must exceed its marginal cost at that quantity.
C) its marginal revenue must be less than its marginal cost at that quantity.
D) its marginal revenue must be equal to zero.

Question 5

Suppose Kate's Great Crete (KGC)has annual variable costs of VC = 30Q + 0.0025Q² and marginal costs of MC = 30 + 0.005Q,where Q is the number of cubic yards of concrete it produces per year.In addition,it has an avoidable fixed cost of $50,000 per year.KGC's demand function is Q^d = 20,000 - 400P.What is the profit maximizing sales quantity?

A) 20
B) 2,000
C) 8,000
D) 0

Question 6

Suppose Kate's Great Crete (KGC)has annual variable costs of VC = 30Q + 0.0025Q² and marginal costs of MC = 30 + 0.005Q,where Q is the number of cubic yards of concrete it produces per year.In addition,it has an avoidable fixed cost of $50,000 per year.KGC's demand function is Q^d = 20,000 - 400P.What is the profit maximizing sales price?

A) $47.70
B) $30.00
C) $45.00
D) $50.00

Question 7

Kate's Great Crete (KGC)is a local monopolist of ready-mix concrete.Its annual demand function is Q = 20,000 - 400P,where P is the price,in dollars,of a cubic yard of concrete and Q is the number of cubic yards sold per year.What is KGC's marginal revenue when it sells 5,000 cubic years of concrete per year?

A) $37.50
B) $25.00
C) $50.00
D) $0.00

Question 8

A firm's markup:

A) is the amount by which its price exceeds its marginal cost, expressed as a percentage of its price.
B) is the amount by which its marginal cost exceeds its average cost.
C) is the amount by which its average cost exceeds its marginal cost.
D) is the value of its profit.

Question 9

Suppose Kate's Great Crete (KGC)has annual variable costs of VC = 30Q + 0.0025Q² and marginal costs of MC = 30 + 0.005Q,where Q is the number of cubic yards of concrete it produces per year.In addition,it has an avoidable fixed cost of $50,000 per year.KGC's demand function is Q^d = 20,000 - 400P.What is KGC's total revenue function?

A) TR = 50Q - 0.0025Q²
B) TR = 50Q + 0.0025Q²
C) TR = 20,000 - 400P
D) TR = 50 - 0.005Q

Question 10

Kate's Great Crete (KGC)is a local monopolist of ready-mix concrete.Its annual demand function is Q = 20,000 - 400P,where P is the price,in dollars,of a cubic yard of concrete and Q is the number of cubic yards sold per year.What price does KGC charge per unit when it sells 5,000 cubic years of concrete per year?

A) $12.50
B) $25.00
C) $37.50
D) $50.00

Question 11

Kate's Great Crete (KGC)is a local monopolist of ready-mix concrete.Its annual demand function is Q = 20,000 - 400P,where P is the price,in dollars,of a cubic yard of concrete and Q is the number of cubic yards sold per year.What is KGC's marginal revenue function?

A) MR = 20,000 - 200Q
B) MR = 400 - 10,000Q
C) MR = 50 - (1/400)Q
D) MR = 50 - 0.005Q

Question 12

Kate's Great Crete (KGC)is a local monopolist of ready-mix concrete.Its annual demand function is Q = 20,000 - 400P,where P is the price,in dollars,of a cubic yard of concrete and Q is the number of cubic yards sold per year.What is KGC's inverse demand function?

A) P = 20,000 - 400Q
B) P = 400 - 20,000Q
C) P = 50 - 0.0025Q
D) P = 50 - 0.005Q

Question 13

Suppose Kate's Great Crete (KGC)has annual variable costs of VC = 30Q + 0.0025Q² and marginal costs of MC = 30 + 0.005Q,where Q is the number of cubic yards of concrete it produces per year.In addition,it has an avoidable fixed cost of $50,000 per year.KGC's demand function is Q^d = 20,000 - 400P.What is KGC's profit at the profit maximizing sales price?

A) $30,000
B) $90,000
C) $120,000
D) -$30,000

Question 14

A monopoly market is:

A) a market with many sellers.
B) a market with a single seller.
C) a market with a few sellers.
D) a market with a single buyer.

Question 15

An oligopoly market is:

A) a market with many sellers.
B) a market with a single seller.
C) a market with a few sellers.
D) a market with many buyers.

Question 16

Kate's Great Crete (KGC)is a local monopolist of ready-mix concrete.Its annual demand function is Q = 20,000 - 400P,where P is the price,in dollars,of a cubic yard of concrete and Q is the number of cubic yards sold per year.What is the difference between price and marginal revenue when KGC sells 5,000 cubic years of concrete per year?

A) $12.50
B) $25.00
C) $37.50
D) $50.00

Question 17

Significant market power exists in:

A) perfectly competitive markets only.
B) oligopoly markets only.
C) oligopoly markets and perfectly competitive markets.
D) monopoly markets and oligopoly markets.

Question 18

The more elastic is the demand for a product:

A) the greater the difference between marginal revenue and price.
B) the closer is marginal revenue to the price.
C) the more a firm must reduce its price to increase its sales.
D) the less a firm must increase its sales to reduce the price.

Question 19

A firm's Lerner Index:

A) is the amount by which its price exceeds its marginal cost, expressed as a percentage of its price.
B) is the amount by which its marginal cost exceeds its average cost.
C) is the amount by which its average cost exceeds its marginal cost.
D) is the value of its profit.

Question 20

Suppose Kate's Great Crete (KGC)has annual variable costs of VC = 30Q + 0.0025Q² and marginal costs of MC = 30 + 0.005Q,where Q is the number of cubic yards of concrete it produces per year.In addition,it has an avoidable fixed cost of $50,000 per year.KGC's demand function is Q^d = 20,000 - 400P.What is KGC's average cost function?

A) AC = (50,000/Q) + 50 + 0.005Q
B) AC = (20,000/Q) + 30 + 0.005Q
C) AC = (50,000/Q) + 30 + 0.0025Q
D) AC = 50,000 + 30Q + 0.0025Q²

Question 21

A monopsonist:

A) faces a downward-sloping demand curve and by lowering the quantity he sells, he can charge more.
B) faces a horizontal demand curve and by raising price, he will lose all of his consumers.
C) faces an upward-sloping supply curve and by lowering the quantity he buys, he can pay less.
D) faces a downward-sloping supply curve and by increasing the quantity he buys, he can pay less.

Question 22

The Solo Coal Mine is the only employer in the small town of Way out there.The market supply of coal miners is Q^s = 0.02W - 400,where W is the annual wage of a coal miner and Q is the number of people who would accept employment as a coal miner.What is the inverse supply function for coal miners?

A) W = 0.02Q^s - 400
B) W = 0.02Q^s + 400
C) W = 50Q^s + 20,000
D) W = 200Q^s + 800

Question 23

The Solo Coal Mine is the only employer in the small town of Way out there.The market supply of coal miners is Q^s = 0.02W - 200,where W is the annual wage of a coal miner and Q is the number of people who would accept employment as a coal miner.What is the coal mine's marginal expenditure when it hires 100 coal miners?

A) $15,000
B) $20,000
C) $10,000
D) $1,000,000

Question 24

The Solo Coal Mine is the only employer in the small town of Way out there.The market supply of coal miners is Q^s = 0.02W - 200,where W is the annual wage of a coal miner and Q is the number of people who would accept employment as a coal miner.What is the coal mine's marginal expenditure function?

A) ME = 50Q + 10,000
B) ME = 100Q + 10,000
C) ME = 200Q + 500
D) ME = 250Q + 500

Question 25

The difference between a monopsonist's marginal expenditure and that of a price taker is:

A) the marginal cost of the input.
B) the input expansion effect.
C) the price increase effect.
D) the marginal substitution effect.

Question 26

Because the monopolist doesn't pay attention to the willingness to pay of inframarginal consumers:

A) there can sometimes be a difference between what level of product quality is profitable for the monopolist and what level of product quality maximizes aggregate surplus.
B) the monopolist will choose the optimal level of product quality.
C) the quantity chosen by the monopolist will sometimes maximize aggregate surplus.
D) there can never be a difference between the marginal cost of higher product quality and the marginal value to consumers of higher product quality.

Question 27

The deadweight loss from monopoly pricing is:

A) the amount by which aggregate surplus falls short of its minimum possible value, which is attained in a perfectly competitive market.
B) the amount by which consumer surplus exceeds producer surplus.
C) the amount by which aggregate surplus falls short of its maximum possible value, which is attained in a perfectly competitive market.
D) the amount by which producer surplus exceeds consumer surplus.

Question 28

Suppose a monopoly firm has an annual demand function of Q^d = 20,000 - 250P,annual variable costs of VC = 16Q + 0.002Q² and marginal cost of MC = 16 + 0.004Q,where Q is the annual quantity of output.In addition,the firm has an avoidable fixed cost of $25,000 per year.If this firm maximizes its profit,what is the value of the deadweight loss caused by this monopoly?

A) $242,000
B) $55,250
C) $30,250
D) $5,250

Question 29

The ________ consumers make decisions about whether to purchase that ________ affected by small changes in price or quality,therefore a quality improvement for these consumers is not profitable.

A) inframarginal; are
B) inframarginal; are not
C) marginal; are
D) marginal; are not

Question 30

Suppose a monopoly firm has an annual demand function of Q^d = 20,000 - 250P,annual variable costs of VC = 16Q + 0.002Q² and marginal cost of MC = 16 + 0.004Q,where Q is the annual quantity of output.In addition,the firm has an avoidable fixed cost of $25,000 per year.If this firm maximizes its profit,what is the value of its producer surplus?

A) $156,500
B) $181,500
C) $242,000
D) $217,000

Question 31

A monopolist's profit maximizing price depends upon:

A) the elasticity of demand.
B) the level of demand.
C) the elasticity of supply.
D) the level of supply.

Question 32

The Solo Coal Mine is the only employer in the small town of Way out there.The market supply of coal miners is Q^s = 0.02W - 200,where W is the annual wage of a coal miner and Q is the number of people who would accept employment as a coal miner.What is the coal mine's marginal expenditure when it hires 150 coal miners?

A) $17,500
B) $30,500
C) $10,000
D) $25,000

Question 33

A firm's markup over its marginal cost is greater:

A) the more elastic is the demand curve.
B) the less elastic is the demand curve.
C) the lower its fixed costs.
D) the lower its average costs.

Question 34

Suppose a monopoly firm has an annual demand function of Q^d = 20,000 - 250P,annual variable costs of VC = 16Q + 0.002Q² and marginal cost of MC = 16 + 0.004Q,where Q is the annual quantity of output.In addition,the firm has an avoidable fixed cost of $25,000 per year.If this firm maximizes its profit,what is the value of the consumer surplus in the market?

A) $121,000
B) $60,500
C) $136,125
D) $0

Question 35

The welfare analysis of advertising is controversial because evaluation of the effect of advertising on aggregate surplus depends on:

A) the marginal cost of the advertising.
B) whether the inframarginal consumer is influenced by the advertising.
C) whether the advertising is tied to a quality increase.
D) the reason it succeeds in increasing demand.

Question 36

A monopsonist's marginal expenditure is:

A) the extra benefit from hiring or purchasing the marginal unit of an input, per marginal unit.
B) the extra cost incurred to hire or purchase the marginal units of an input, per marginal unit.
C) the difference between the marginal cost and benefit from hiring the marginal unit of an input, per marginal unit.
D) the total cost incurred to hire or purchase all units of an input in the production process.

Question 37

Suppose a monopoly firm has an annual demand function of Q^d = 20,000 - 250P,annual variable costs of VC = 16Q + 0.002Q² and marginal cost of MC = 16 + 0.004Q,where Q is the annual quantity of output.In addition,the firm has an avoidable fixed cost of $25,000 per year.If this firm maximizes its profit,what is the value of aggregate surplus?

A) $247,250
B) $272,250
C) $242,000
D) $217,000

Question 38

The Solo Coal Mine is the only employer in the small town of Way out there.The market supply of coal miners is Q^s = 0.02W - 200,where W is the annual wage of a coal miner and Q is the number of people who would accept employment as a coal miner.What is the inverse supply function for coal miners?

A) W = 0.02Q^s - 200
B) W = 0.02Q^s + 200
C) W = 50Q^s + 10,000
D) W = 200Q^s + 500

Question 39

A monopsony market:

A) is a market with a single buyer.
B) is a market with a single seller.
C) is a market with a single input.
D) is a market with a single product.

Question 40

Rent-seeking is:

A) illegal.
B) a reason that the deadweight loss from a monopoly could be just a small fraction of the actual loss caused by monopoly power.
C) the process for that profit-maximizing monopolies use to determine optimal product quality.
D) another term for advertising.

Question 41

The Solo Coal Mine is the only employer in the small town of Way out there.The market supply of coal miners is Q^s = 0.02W - 400 and Q^d = 500 - 0.02W,where W is the annual wage of a coal miner and Q is the number of coal miners.What is the deadweight loss due to the monopsony in the coal miners market?

A) $27,778
B) $13,889
C) $41,667
D) $21,667

Question 42

The Solo Coal Mine is the only employer in the small town of Way out there.The market supply of miners is Q^s = 0.02W - 200 and Q^d = 500 - 0.02W,where W is the annual wage of a coal miner and Q is the number of coal miners.What is the profit maximizing number of coal miners for the coal mine to hire?

A) 100
B) 150
C) 50
D) 233.33

Question 43

The Solo Coal Mine is the only employer in the small town of Way out there.The market supply of coal miners is Q^s = 0.02W - 400,where W is the annual wage of a coal miner and Q is the number of people who would accept employment as a coal miner.What is the coal mine's marginal expenditure when it hires 150 coal miners?

A) $35,000
B) $20,000
C) $10,000
D) $5,000

Question 44

The Solo Coal Mine is the only employer in the small town of Way out there.The market supply of coal miners is Q^s = 0.02W - 200 and Q^d = 500 - 0.02W,where W is the annual wage of a coal miner and Q is the number of coal miners.What is the inverse demand function for coal miners?

A) W = 0.02Q - 500
B) W = 0.02Q + 500
C) W = 25,000 - 50Q
D) W = 200Q + 50,000

Question 45

The Solo Coal Mine is the only employer in the small town of Way out there.The market supply of coal miners is Q^s = 0.02W - 200 and Q^d = 500 - 0.02W,where W is the annual wage of a coal miner and Q is the number of coal miners.What is the wage required to hire the profit maximizing number of workers?

A) $25,000
B) $50,000
C) $20,000
D) $15,000

Question 46

Suppose a multi-product monopolist sells two complementary goods,A and B. Annual market demand for good A is Q^d_A = 600 - 25P_A - 12P_B. Each time a consumer buys A, his demand for B is Q^d_B = 4 - 0.4P_B. The marginal cost of good A is a constant $4, and the marginal cost of good B is a constant $0.50. Suppose the price of good B is $5. If the monopolist considers the effect of additional sales of A on the sales of good B, how many units of good A will it produce?

A) 415
B) 332.5
C) 220
D) 207.5

Question 47

Suppose a multi-product monopolist sells two complementary goods,A and B. Annual market demand for good A is Q^d_A = 600 - 25P_A - 12P_B. Each time a consumer buys A, his demand for B is Q^d_B = 4 - 0.4P_B. The marginal cost of good A is a constant $4, and the marginal cost of good B is a constant $0.50. Suppose the price of good B is $5. If the monopolist ignores the effect of additional sales of A on the sales of good B, how many units of good A will it produce?

A) 665
B) 440
C) 332.5
D) 220

Question 48

Suppose a multi-product monopolist sells two complementary goods,A and B. Annual market demand for good A is Q^d_A = 600 - 25P_A - 12P_B. Each time a consumer buys A, his demand for B is Q^d_B = 4 - 0.4P_B. The marginal cost of good A is a constant $4, and the marginal cost of good B is a constant $0.50. Suppose the price of good B is $5. If the monopolist considers the effect of additional sales of A on the sales of good B, what will be its total profit from the sales of A and B?

A) $7,414.75
B) $5,752.25
C) $4,422.25
D) $1,429.75

Question 49

Which of the following is NOT a reason why a monopoly might be regulated?

A) To reduce the inefficiency associated with profits
B) To limit prices in important markets with economic or political consequences
C) To deal with the negative consequences of government-created monopolies
D) To ensure that a good is produced at least cost

Question 50

The Solo Coal Mine is the only employer in the small town of Way out there.The market supply of coal miners is Q^s = 0.02W - 200 and Q^d = 500 - 0.02W,where W is the annual wage of a coal miner and Q is the number of coal miners.What is the deadweight loss in the market for coal miners due to the monopsony?

A) $250,000
B) $500,000
C) $125,000
D) $750,000

Question 51

Suppose a firm has a variable cost function VC = 20Q with avoidable fixed cost of $50,000.What kind of firm is this?

A) This firm is a natural monopoly because as Q rises, AC falls.
B) This firm is a natural monopoly because as Q rises, AC rises.
C) This firm is a natural monopoly because as Q rises, VC falls.
D) This firm is a natural monopoly because as Q rises, VC rises.

Question 52

Suppose a firm has a variable cost function VC = 20Q with avoidable fixed cost of $50,000.What is the firm's average cost function?

A) AC = 50,000 + 20Q
B) AC = (50,000/Q) + 20
C) AC = 50,000 + 40Q
D) AC = 20

Question 53

The Solo Coal Mine is the only employer in the small town of Way out there.The market supply of coal miners is Q^s = 0.02W - 400 and Q^d = 500 - 0.02W,where W is the annual wage of a coal miner and Q is the number of coal miners.What wage must be paid at the profit maximizing quantity of coal miners?

A) $23,333
B) $16,670
C) $13,336
D) $21,667

Question 54

The Solo Coal Mine is the only employer in the small town of Way out there.The market supply of coal miners is Q^s = 0.02W - 400 and Q^d = 500 - 0.02W,where W is the annual wage of a coal miner and Q is the number of coal miners.What is the profit maximizing number of coal miners for the coal mine to hire?

A) 300
B) 150
C) 100
D) 33.33

Question 55

The Solo Coal Mine is the only employer in the small town of Way out there.The market supply of coal miners is Q^s = 0.02W - 400,where W is the annual wage of a coal miner and Q is the number of people who would accept employment as a coal miner.What is the coal mine's marginal expenditure when it hires 100 coal miners?

A) $35,000
B) $20,000
C) $10,000
D) $30,000

Question 56

A market is a natural monopoly when:

A) a good is produced most economically by several firms.
B) a good is produced most economically by one firm.
C) the government grants a firm a patent on a good.
D) the firm's average cost function is everywhere upward sloping.

Question 57

The Solo Coal Mine is the only employer in the small town of Way out there.The market supply of coal miners is Q^s = 0.02W - 400,where W is the annual wage of a coal miner and Q is the number of people who would accept employment as a coal miner.What is the coal mine's marginal expenditure function?

A) ME = 50Q + 10,000
B) ME = 100Q + 10,000
C) ME = 50Q + 20,000
D) ME = 100Q + 20,000

Question 58

Suppose a firm has a variable cost function VC = 20Q with avoidable fixed cost of $50,000.For regulators,the first-best regulated price is ______; the second-best regulated price is ____.

A) $80; $480
B) $480; $105
C) $80; $105
D) $105; $80

Question 59

Suppose a multi-product monopolist sells two complementary goods,A and B. Annual market demand for good A is Q^d_A = 600 - 25P_A - 12P_B. Each time a consumer buys A, his demand for B is Q^d_B = 4 - 0.4P_B. The marginal cost of good A is a constant $4, and the marginal cost of good B is a constant $0.50. Suppose the price of good B is $5. What is the effective marginal cost of selling a unit of good A?

A) $5
B) $4
C) -$5
D) -$9

Question 60

A loss leader:

A) is a product that is sold at a price above its direct marginal cost to encourage sales of a complementary product.
B) is a product that is sold at a price below its direct marginal cost to encourage sales of a substitutable good.
C) is a product that is sold at a price below its direct marginal cost to encourage sales of a complementary good.
D) is a product that is sold at a price below its direct marginal cost to encourage sales of a substitutable and complementary good.

Question 61

Explain the difference between a monopoly and a monopsony.

Question 62

Discuss the difference between first-best and second-best price regulation.In your answer,you should address why governments regulate markets and the difficulties faced when doing so.