Deck 10: Monopoly and Price Discrimination

Question 1

Strawberry Inc.has a monopoly on the sale of a specialized smartphone.If it sells 9 of these smartphones its total revenue is $1,800,and if it sells 10 smartphones its total revenue is $1,950.The marginal revenue of the tenth smartphone sold is:

A)$150.
B)$75.
C)$1,950.
D)$1,800.

Answer 1

A

Question 2

Refer to Figure 10.1.The marginal revenue of the fifth pound of cheese is:

A)$2.
B)$1.
C)$5.
D)$25.

Answer 2

B

Question 3

Refer to Figure 10.1.The marginal revenue of the sixth pound of cheese is:

A)-$4.
B)-$1.
C)$1.
D)$4.

Answer 3

B

Question 4

Assume that Pura Water,a local monopoly water utility company,is currently selling 10,000 gallons per hour at a price of $0.10 per gallon.If Pura Water wants to sell 1000 gallons more,it will have to lower the price to $0.09 per gallon.The marginal revenue of the 10,001 is approximately:

A)-$99.91.
B)$99.91.
C)$9.91.
D)-$999.91.

Question 5

For a profit maximizing monopolist,price:

A)equals marginal revenue.
B)is less than marginal revenue.
C)is greater than marginal revenue.
D)can be greater than or less than marginal revenue.

Question 6

In a monopoly,the market demand curve is:

A)the same as the demand curve facing the firm.
B)the summation of all the individual firm's demand curves.
C)nonexistent.
D)the marginal cost curve above minimum average variable cost.

Question 7

To maximize profit,the monopolist produces on the ________ portion of the demand curve where ________.

A)elastic;price equals marginal cost
B)elastic;marginal revenue equals marginal cost
C)inelastic;price equals marginal revenue
D)inelastic;marginal revenue equals marginal cost

Question 8

For a non-price discriminating monopolist to sell more units of output:

A)the price must be increased.
B)the price must be reduced.
C)demand must become more elastic.
D)the other competing firms must sell fewer units.

Question 9

Which type of barrier to entry allows the electric company to maintain a monopoly over the production of electricity?

A)a patent
B)economies of scale
C)diseconomies of scale
D)ownership of a scarce factor of production

Question 10

The tradeoffs faced by a monopolist in cutting price to sell a larger quantity leads to marginal revenue being:

A)less than price.
B)greater than price.
C)equal to price.
D)none of the above.

Question 11

Refer to Figure 10.2.The marginal revenue of the eighth pound of burritos is:

A)$5.
B)$3.
C)$6.
D)$24.

Question 12

A monopolist can:

A)sell as much as he wants at the chosen price since he is the only seller.
B)increase price only if he is willing to reduce output sold.
C)increase the price of his output and still sell the same quantity.
D)increase the price of his output and the quantity sold at the same time.

Question 13

Barriers to entry are used to:

A)enable a firm to exercise control over the price of its product.
B)prevent other firms from entering the market.
C)allow the firm to earn economic profits.
D)all of the above

Question 14

Refer to Figure 10.2.The marginal revenue of the 10th pound of burritos is:

A)-$4.
B)-$1.
C)$1.
D)$4.

Question 15

Which of the following is a barrier to entry for a monopoly?

A)government licensing
B)patents
C)network externalities
D)all of the above

Question 16

Assume a non-price discriminating monopolist can sell 20 units of a good for 4.00 each and can sell 21 units of that good for $ 3.85 each.The marginal revenue of the 21st unit is:

A)$85.
B)$ -85.
C)$ .85.
D)$ -.85.

Question 17

Assume a non-price discriminating monopolist can sell 45 units of a good for $ 1.50 each and can sell 46 units of that good for $ 1.45 each.The marginal revenue of the 46th unit is:

A)-$ .08
B)$ .08.
C)$ .80.
D)-$ .80

Question 18

A local cable company has a monopoly on cable service.If it sells 20 of the services its total revenue is $10,000 and if it sells 21 services its total revenue is $10,600.The marginal revenue of the 21st service sold is:

A)$800.
B)$13.
C)$850.
D)$600.

Question 19

The Rare Bird Company has a monopoly in the sale of macaws in Iowa.When the Rare Bird Company sells three macaws its marginal revenue is $30.When the Rare Bird Company sells four macaws its marginal revenue will be:

A)less than $30.
B)greater than $30.
C)equal to $30.
D)greater than $30 if demand is elastic and less than $30 if demand is inelastic.

Question 20

A local cable company has a monopoly on cable service.If it sells 20 of the services its total revenue is $10000,and if it sells 21 services its total revenue is $10,600.When the local cable company sells 21 programs,the price per service is closest to:

A)$600.
B)$500.
C)$505.
D)$50

Question 21

Which one of the following is good example of a natural monopoly?

A)electricity
B)cable TV service
C)water systems
D)all of the above

Question 22

For a monopolist,if total revenue increases as output decreases,then marginal revenue is:

A)equal to price.
B)zero.
C)positive.
D)negative.

Question 23

Refer to Figure 10.3.The profit-maximizing level of output for this monopolist is ________ units of output.

A)20
B)22
C)24
D)26

Question 24

A Colombian emerald mine has a monopoly over the production of emeralds in Colombia.The mine will find it profitable to increase the mining production of emeralds as long as marginal cost:

A)is less than marginal revenue.
B)equals marginal revenue.
C)is greater than marginal revenue.
D)is positive.

Question 25

Refer to Figure 10.3.In the long run this monopoly firm's profit will:

A)fall.
B)rise.
C)remain unchanged.
D)become normal.

Question 26

Refer to Figure 10.5.The profit-maximizing level of profit for the Memory Company is:

A)-$1,800.
B)-$1,200.
C)-$800.
D)$0.

Question 27

Refer to Figure 10.6.At the profit-maximizing level of output,total revenue:

A)is $10,000.
B)is $20,000.
C)is $40,000.
D)is $50,000.

Question 28

A profit-maximizing monopolist will produce an output level at which:

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

Question 29

According to the Application about setting the price of tickets for Major League Baseball games,due to the marginal revenue from ticket sales for a typical Major League Baseball team,the team could increase total revenue from ticket sales by:

A)increasing the price of tickets and increasing the quantity of tickets sold.
B)decreasing the price of tickets and increasing the quantity of tickets sold.
C)increasing the price of tickets and decreasing the quantity of tickets sold.
D)decreasing the price of tickets and decreasing the quantity of tickets sold.

Question 30

Refer to Figure 10.6.The profit-maximizing (or loss-minimizing)level of output:

A)is 10,000.
B)is 0.
C)is approximately 15,000.
D)is approximately 25,000.

Question 31

Refer to Figure 10.6.The profit-maximizing price:

A)is $2.
B)is $4.
C)is $5.
D)is approximately $4.50.

Question 32

Refer to Figure 10.3.The profit-maximizing price for this firm is:

A)$5.
B)$7.
C)$9.
D)$11.

Question 33

Refer to Figure 10.3.If this firm is producing the profit-maximizing quantity and selling it at the profit-maximizing price,the firm's profit will be:

A)$80.
B)$84.
C)$88.
D)$132.

Question 34

Refer to Figure 10.4.The Exclusive Gift Company has a monopoly over the sale of gold hula hoops.This company is currently selling 50 gold hula hoops at a price of $5,000.You are hired as an economic consultant to this company.You should advise this monopolist to:

A)shut down in the short run and exit the industry in the long run.
B)produce in the short run and expand capacity in the long run.
C)produce in the short run but exit the industry in the long run if conditions do not change.
D)shut down in the short run but expand capacity in the long run if conditions do not change.

Question 35

Suppose we know that a monopolist is maximizing its profits.Which of the following must be true? The monopolist has:

A)maximized its total revenue.
B)set price equal to its average cost.
C)maximized the difference between marginal revenue and marginal cost.
D)equated marginal revenue and marginal cost.

Question 36

Tower Communications Inc.has a monopoly over local cellphone service.If Tower Communications Inc.is producing where marginal revenue is greater than marginal cost,the firm:

A)could increase profits by reducing output.
B)could increase profits by increasing output.
C)is maximizing profits.
D)must be earning a zero profit.

Question 37

Refer to Figure 10.6.At the profit-maximizing level of output,total cost:

A)is $10,000.
B)is $20,000.
C)is $30,000.
D)is $50,000.

Question 38

Refer to Figure 10.5.The profit-maximizing level of output for the Memory Company is ________ high school yearbooks.

A)0
B)200
C)300
D)350

Question 39

Refer to Figure 10.6.At the profit-maximizing level of output,the firm has a:

A)profit of $10,000.
B)profit of $20,000.
C)loss of $10,000.
D)break-even position.

Question 40

Refer to Figure 10.5.The profit-maximizing price for the Memory Company's high school yearbook is:

A)$0.
B)$9.
C)$16.
D)$20.

Question 41

An unnatural monopoly occurs when the scale economies in production are so large that only a single firm can earn profit.

Question 42

Comment on the following statement: "For a nondiscriminating monopolist,marginal revenue is always equal to price."

Question 43

In order for a monopoly to maximize its profit,the monopoly will produce the quantity at which marginal revenue is less than marginal cost.

Question 44

A monopoly firm cannot affect the price therefore it is a price taker.

Question 45

Refer to Figure 10.8.If the paper books industry is competitive,the market price will be ________ and the market output will be ________ units.

A)$25;600
B)$10;400
C)$20;800
D)$15;600

Question 46

For a competitive firm,the level of output that maximizes profits is where marginal revenue ________ marginal cost,and for a monopolist it is where marginal revenue ________ marginal cost.

A)is equal to;is greater than
B)is equal to;is less than
C)is equal to;is equal to
D)is greater than;is equal to

Question 47

A monopoly is a market that consists of one buyer and many sellers.

Question 48

Table 10.2
ABC,Incorporated has a local monopoly in the sale of automatic paper towel dispensers.Table 10.2 shows the demand for these towel dispensers at various prices.The total cost of production of the various levels of output is also shown.Calculate total revenue and profit for the firm.What level of output maximizes profit? What price should the firm charge?

Question 49

For a competitive firm,marginal revenue is ________ price,whereas for a monopolist marginal revenue is ________ price.

A)equal to;greater than
B)equal to;less than
C)less than;equal to
D)greater than;equal to

Question 50

Because the monopolist is the sole producer of a good,it can never incur a loss.

Question 51

Table 10.1
Table 10.1 represents the demand for Widgets,Inc. ,which has a monopoly in the sale of widgets.Calculate total revenue and marginal revenue for the levels of output given.

Question 52

At the profit-maximizing level of output,price is ________ marginal cost for a perfectly competitive firm and price is ________ marginal cost for a monopolist.

A)equal to;greater than
B)equal to;less than
C)equal to;equal to
D)greater than;equal to

Question 53

Because the marginal revenue curve for a monopolist lies below its demand curve,the profit-maximizing price of the monopolist will be above marginal cost.

Question 54

What is a government franchise? Give an example.

Question 55

When comparing a monopoly to a perfectly competitive industry at the equilibrium point,we find that monopoly is:

A)inefficient because it charges higher prices.
B)inefficient because it generates less output.
C)efficient because it generate more output due to economies of scale.
D)is neither efficient nor inefficient.

Question 56

Figure 10.7 shows the demand and cost conditions for a monopolist.What is the firm's maximum profit?

Question 57

For a monopolist,price is equal to marginal revenue.

Question 58

Explain three different types of barriers to entry in monopoly.

Question 59

Which of the following is true for both a monopolist and a perfectly competitive firm when each is maximizing profit?

A)Price equals marginal costs.
B)Marginal revenue is less than price.
C)Marginal revenue is equal to marginal cost.
D)all of the above

Question 60

A monopolist is a price maker,but is not entirely free to set the price of its product.Explain.

Question 61

Rent seeking will lower the social cost of monopoly.

Question 62

When the firm is producing at the monopoly equilibrium,its producer surplus will be ________ and the consumer surplus will be ________ than if the industry was competitive.

A)higher;lower
B)higher;higher
C)lower;lower
D)lower;higher

Question 63

The deadweight loss from monopoly is a measure of efficiency from monopoly.

Question 64

If we switch from a perfectly competitive market to a monopoly,consumers will be better off.

Question 65

Refer to Figure 10.9.The profit-maximizing level of output for the monopolist is:

A)500.
B)600.
C)800.
D)1200.

Question 66

Which of the following is a result of the monopolization of a perfectly competitive industry,ceteris paribus?

A)lower prices
B)greater efficiency
C)reduced profits
D)deadweight loss

Question 67

Compared to a monopoly market,a perfectly competitive market will produce more output at a higher price.

Question 68

The government does have the legal authority to break up monopolies into smaller companies.

Question 69

Deadweight loss from monopoly is:

A)the net decrease in the market surplus.
B)the producer surplus loss only.
C)the process of using public policy to reduce losses.
D)the decrease in productivity.

Question 70

The government is not able to regulate the price that a monopolist charges because the price is set by the market.

Question 71

Refer to Figure 10.9.The deadweight loss of monopoly is:

A)ACF.
B)FGBC.
C)BEC.
D)FABE.

Question 72

The process of using public policy to gain economic profit is:

A)deadweight loss.
B)never successful.
C)rent seeking.
D)illegal.

Question 73

If the chimney sweep market became more competitive,one market change that would be expected is:

A)lower output.
B)higher costs.
C)higher profits.
D)lower prices.

Question 74

Insuring a safe and consistent quality of chimney sweeps while losing the benefits of competition in this industry is an example of ________ resulting from monopolies.

A)a quagmire
B)a tradeoff
C)an externality
D)experimentation

Question 75

Refer to Figure 10.8.If the paper books industry becomes monopolized,the profit-maximizing price will be ________ and the profit-maximizing quantity will be ________ units.

A)$25;600
B)$23;400
C)$20;800
D)$10;400

Question 76

Another source of inefficiency from a monopoly is the use of resources to acquire monopoly power.

Question 77

Additional Application
Monopolies are not always easily ended.The European Commission's directorate for the internal market is attempting to end Germany's chimney sweeps' monopoly.For many decades the chimney sweeps in Germany have held a "near-perfect monopoly." While the profession is a private enterprise the local governments set the prices,control the number of sweeps in each district,require that households are inspected,and will not allow consumers to choose a different sweep even if they do not like the one they have.Due to the required annual inspections,sweeps always have jobs and any new entrants into the market will wait years before they are given a district to operate in.One argument in favor of this monopolistic arrangement is based on public safety.If new sweeps are not allowed to enter the industry then quality regulation is more easily insured.If the current sweeps continue to earn profits,none will leave the industry either.While the European Commission wants a more competitive market,they realize that it will not develop soon.
"Chimney Sweeps Under Fire," The Economist,October 21,2006,p.76.
How is the chimney sweep monopoly maintained?

A)The government does not allow easy entry for competitors.
B)Chimney sweeps hold closed meetings that exclude all competitors.
C)The level of technology is too sophisticated for most new entrants to comprehend.
D)The consumers want it to remain noncompetitive.

Question 78

Relative to a perfectly competitive market,a monopoly produces:

A)more output,charges higher prices,and earns economic profits.
B)more output,charges higher prices,and earns economic losses.
C)less output,charges higher prices,and earns only a normal profit.
D)less output,charges higher prices,and earns economic profits.

Question 79

Recall the application of a casino monopoly in Creswell,Oregon,the developers interested in building the casino offered $2 million per year to the citizens.This is another example of:

A)a deadweight loss.
B)rent seeking.
C)high-cost industry.
D)trade-offs.

Question 80

From society's point of view,a monopolist produces too little because price:

A)is less than marginal cost.
B)is less than average cost.
C)exceeds average cost.
D)exceeds marginal cost.