Question 1

It is very rare for monopolies to arise from exclusive ownership of a resource because:

Accepted Answer

Monopolies require exclusive ownership of a resource for which there are no close substitutes. However, such resources are rare, and even if a firm does own a unique resource, it may not be able to monopolize the market due to factors such as the small size of the market or the local nature of the resource. Therefore, option C is the best choice.

Question 2

For a profit-maximising monopolist, output should be increased to enhance economic wellbeing as long as:

Accepted Answer

The answer of For a profit-maximising monopolist, output should be...

Question 3

Refer to the information provided.Jack, the sole owner of all the wells in town, decides to move to a more suitable climate, so he sells the wells to a couple of dozen different town residents.Which of the following is likely to occur?

Accepted Answer

When a monopoly (Jack owning all the wells) is broken up into several smaller competitors, prices typically decrease due to competition, individual sellers have less control over prices compared to a single owner, and consumers (town residents) benefit from lower prices and potentially better services.

Question 4

The profits that a monopoly makes are:

Accepted Answer

Monopolies are able to charge higher prices and earn higher profits because they have no competition. This results in a direct transfer of economic surplus from consumers to producers, as consumers are willing to pay a higher price for the product due to lack of alternative options. This is not necessarily inefficient, as the monopolist is still producing at a level where marginal cost equals marginal revenue, but it does result in a decrease in total surplus for society. Therefore, option C is the best choice.

Question 5

According to the information provided, if dozens of residents have their own wells, which of the following statements most adequately describes the behaviour of sellers of water?

Accepted Answer

If many residents have their own wells, the sellers of water will face stiff competition, which will force them to lower prices so as to compete effectively in the market. As such, the price of water will be driven to be equal to its marginal cost, since the sellers will need to cover their costs while still keeping the prices low enough to be competitive. Therefore, option B is the correct answer.

Question 6

According to the information provided, suppose only one resident owns all the wells in town.Which of the following statements is most likely going to be true of the market for water?

Accepted Answer

When one resident owns all the wells in town, they have a monopoly on the market for water. This gives them the ability to raise the price of water above its marginal cost, allowing them to earn excess profits. Therefore, the price of a gallon of water will likely exceed its marginal cost.

Question 7

An appropriate way to measure the economic inefficiency of a monopoly is the:

Accepted Answer

Deadweight loss is the appropriate way to measure the economic inefficiency of a monopoly because it represents the loss of consumer surplus and producer surplus that occurs when a monopoly reduces output to increase prices. This loss is a measure of inefficiency, as there could be a higher level of output and welfare if the monopoly did not exist. The other options - number of consumers who are unable to purchase the product, low wages paid to workers, and poor quality of service - are all potential negative consequences of a monopoly, but they do not directly measure economic inefficiency.

Question 8

A government created monopoly arises when:

Accepted Answer

A government created monopoly arises when the government gives a firm the exclusive right to sell some good or service. This can be done through various means such as granting patents or copyrights, giving exclusive contracts to a certain firm, or creating barriers to entry for competitors. Government spending and encouraging competition among sellers do not necessarily create monopolies.

Question 9

In the market for Jiggly Wigs, the profit-maximising monopolist is charging a price $2 higher than marginal cost.Suppose instead of a monopoly this market was competitive, but the government placed a $2 tax on the competitive price of the good.What can we say about the relative dead-weight losses in the long-run?

Accepted Answer

The dead-weight loss (DWL) depends on the elasticity of demand and supply, and the shape of the marginal cost curve. Without information on these factors, we cannot determine which scenario would result in a higher DWL.

Question 10

Monopoly pricing prevents some mutually beneficial trades from taking place.These unrealised mutually beneficial trades are:

Accepted Answer

Monopoly pricing creates a deadweight loss to society because it prevents some mutually beneficial trades from happening. This means that both the consumer and the producer would be better off if the transaction could take place, but the monopoly's pricing strategy makes it impossible. This creates inefficiencies and reduces overall economic welfare.

Question 11

A perfectly price-discriminating monopolist is able to:

Accepted Answer

A perfectly price-discriminating monopolist charges each consumer the maximum they are willing to pay, thus capturing all consumer surplus as producer surplus. This leads to an efficient allocation of resources, where the quantity produced is more consistent with the socially optimal level, and the monopolist maximizes profit.

Question 12

The simplest way for a monopoly to arise is for a single firm to:

Accepted Answer

If a single firm owns a key resource, it can prevent other firms from competing in the market by controlling access to the resource. This can lead to a monopoly as there is no other firm that can produce the product without the resource.

Question 13

When the price of a good increases, which of the following happen(s) to the quantity sold for a monopoly firm?
(i) customers are forced to buy at the higher price
(ii) quantity sold will stay the same
(iii) revenue will necessarily increase
(iv) quantity sold will fall

Accepted Answer

For a monopoly firm, when the price of a good increases, the quantity sold will fall due to the law of demand. Customers are not forced to buy at the higher price, and the quantity sold does not necessarily stay the same. Revenue may not necessarily increase because the decrease in quantity sold could offset the price increase.

Question 14

What is the monopolist's profit under the following conditions? The profit-maximising price charged for goods produced is $22.The intersection of the marginal-revenue and marginal-cost curves occurs where output is 15 units and marginal cost is $6.

Accepted Answer

The answer of What is the monopolist's profit under the...

Question 15

Choose the correct statement.The deadweight loss from monopoly pricing arises because:
i. monopolists profits are a transfer from consumers to producers
ii. the value some consumers place on the good is greater than the cost of providing it
iii. the market price is above marginal cost

Accepted Answer

Deadweight loss in monopoly pricing primarily occurs because some consumers who value the good more than its marginal cost are not able to purchase it due to the high price (ii), and because the market price is set above the marginal cost (iii), leading to inefficient allocation of resources. Statement (i) describes a transfer of surplus from consumers to producers, which is not a deadweight loss but a redistribution of wealth.

Question 16

Which of the following scenarios best represents a monopoly situation?

Accepted Answer

A monopoly situation is one in which there is only one seller in the market, giving them complete control over the price of the goods or services they provide. In this scenario, Bill is the only seller of groceries in the small community, making him a monopoly. Option A has two sellers, while option C does not have a monopoly as there may be other fishing equipment stores in Miami.

Question 17

Consider a profit-maximising monopoly pricing under the following conditions.The profit-maximising price charged for goods produced is $18.The intersection of the marginal-revenue and marginal-cost curves occurs where output is 10 units and marginal cost is $6.The socially efficient level of production is 14 units.The demand curve and marginal-cost curves are linear.What is the deadweight loss?

Accepted Answer

The deadweight loss can be calculated using the formula:

Deadweight loss = 0.5*(Pmonopoly - Pefficient)* (Qefficient - Qmonopoly)

where, Pmonopoly is the price charged by the monopolist, Pefficient is the socially efficient price, Qmonopoly is the quantity produced by the monopolist, and Qefficient is the socially efficient quantity.

Given:

Pmonopoly = $18
Qmonopoly = 10
MEfficient = $6
Qefficient = 14

The socially efficient price can be found by equating marginal cost to marginal revenue, which is $6 in this case. So, Pefficient = $6.

Therefore,

Deadweight loss = 0.5*(18-6)*(14-10) = $24.

Hence, the correct answer is B.

Question 18

The socially efficient level of production occurs where the marginal-cost curve intersects which of the following curves?

Accepted Answer

The socially efficient level of production occurs where the marginal cost curve intersects the demand curve, as this point reflects the optimal allocation of resources where the cost of producing an additional unit equals the value consumers place on it.

Question 19

If a monopolist sells 200 units at $10 per unit and realises an average total cost of $6 per unit, what is the monopolist's profit?

Accepted Answer

The monopolist's profit is calculated by subtracting the total cost from the total revenue. Total revenue is 200 units * $10 = $2000, and total cost is 200 units * $6 = $1200. Profit = $2000 - $1200 = $800.

Question 20

Given that monopoly firms do not have to compete with other firms, the outcome in a monopoly market is best described as:

Accepted Answer

Monopoly firms have the ability to set high prices and restrict output, resulting in reduced consumer surplus and less overall economic welfare. This outcome is not in the best interest of society. The other options, excessive pollution and efficiency without equity, may or may not occur in a monopoly market, but are not necessarily defining characteristics.

Quiz 15: Monopoly