Question 1

Compared to a competitive industry, a monopolist is likely to achieve _____ producer surplus while generating _____ deadweight loss.

Accepted Answer

A monopolist can set prices above marginal cost, leading to higher producer surplus than in a competitive market. However, this also results in a reduction in quantity sold, creating a deadweight loss as some mutually beneficial trades do not occur.

Question 2

Which of these is NOT a potential benefit provided by monopolies?

Accepted Answer

Monopolies typically do not increase consumer surplus through smaller scale operations; instead, they often reduce consumer surplus by restricting output and raising prices.

Question 3

Which of these tactics is LEAST common among monopoly firms?

Accepted Answer

Monopoly firms typically do not expand the quantity sold to maximize profits; instead, they find the profit-maximizing quantity, which is often less than the quantity that would be sold in a competitive market. This is because monopolies can restrict output to raise prices and maximize their profits, unlike firms in competitive markets that tend to produce more to capture more market share.

Question 4

When a monopoly firm produces its profit-maximizing quantity, the corresponding price is generally _____ than for a competitive firm and the resulting consumer surplus is _____.

Accepted Answer

In a monopoly, the firm has market power, allowing it to set prices higher than in a competitive market, which reduces consumer surplus compared to a competitive scenario.

Question 5

The approximate value of deadweight loss created by this profit-maximizing monopolist is

Accepted Answer

The answer of The approximate value of deadweight loss created...

Question 6

Each of these are possible benefits from a monopoly EXCEPT

Accepted Answer

Monopolies can lead to inefficiencies in the market, including deadweight loss, because they can set prices above marginal cost, reducing consumer surplus and overall welfare.

Question 7

When a monopolist spends money to make it harder for competitors to enter the industry, this is referred to as

Accepted Answer

Rent seeking refers to activities undertaken by individuals or firms to influence public policy or economic conditions in a way that increases their incomes or profits without adding any value to society. In the context of a monopolist, spending money to make it harder for competitors to enter the industry is a form of rent seeking because it aims to preserve the monopolist's market power and profits by preventing competition, rather than by improving the product or reducing costs.

Question 8

The taxi industry in many cities has lobbied politicians to increase driver requirements for ride-sharing companies such as Uber in order for them to operate legally. The money spent by the taxi industry for this purpose demonstrates

Accepted Answer

The money spent by the taxi industry to lobby politicians for increased driver requirements for ride-sharing companies is an example of rent-seeking. Rent-seeking occurs when a company, organization, or individual uses their resources to obtain an economic gain from others without reciprocating any benefits back to society through wealth creation. In this case, the taxi industry is attempting to secure a regulatory advantage that would limit competition, rather than improving their own services or competing on merit.

Question 9

The additional producer surplus that a monopolist gains causes which of these?

Accepted Answer

Monopolists can set prices above marginal costs, leading to a reduction in consumer surplus as consumers pay more than they would under perfect competition. This pricing also results in quantities produced and consumed that are less than the socially optimal level, creating deadweight loss due to inefficient allocation of resources.

Question 10

When a firm uses price discrimination successfully, the result is that producer surplus _____ while deadweight loss _____ compared to a single-price monopoly.

Accepted Answer

Price discrimination allows a firm to capture more consumer surplus by charging different prices to different consumers based on their willingness to pay, thus increasing producer surplus. It also typically leads to an increase in output compared to a single-price monopoly, reducing deadweight loss.

Question 11

The primary goal of a firm engaging in price discrimination is to

Accepted Answer

Price discrimination aims to capture as much consumer surplus as possible and convert it into producer surplus, thereby increasing the firm's profits. This involves charging different prices to different consumers or groups of consumers based on their willingness to pay.

Question 12

When a theme park sells a one-day adult pass for $110 and a two-day adult pass for $180, and a one-day child pass for $90 and a two-day child pass for $150, the theme park is engaging in

Accepted Answer

Second-degree price discrimination is when prices vary according to the quantity consumed or the form of the product, such as offering discounts for buying in bulk or for different versions of a product (e.g., one-day vs. two-day passes). Third-degree price discrimination involves charging different prices to different demographic groups, such as adults and children. This scenario does not involve first-degree price discrimination, where prices are personalized for individual consumers.

Question 13

Which of these BEST describes second-degree price discrimination?

Accepted Answer

Second-degree price discrimination involves charging different prices based on the quantity consumed or the version of the product, like upgrading a data plan for an additional cost.

Question 14

Which strategy makes price discrimination more difficult for a firm?

Accepted Answer

Allowing unwanted concert tickets to be sold on StubHub makes price discrimination more difficult for a firm because it enables a secondary market where tickets can be resold, potentially at prices different from the original price set by the firm. This undermines the firm's ability to segment the market and charge different prices to different consumers based on their willingness to pay.

Question 15

When a firm uses third-degree price discrimination, the group of consumers with _____ demand would face the highest prices.

Accepted Answer

In third-degree price discrimination, firms charge different prices to different groups based on their price elasticity of demand. The group with low elasticity of demand (meaning their quantity demanded changes little with price changes) is charged higher prices because they are less sensitive to price changes and are willing to pay more.

Question 16

Consumers often seek bargains by purchasing goods in large quantities; for example, buying in bulk at Costco or buying larger boxes of cereal so the price per ounce is lower. These purchasing strategies result in which form of price discrimination?

Accepted Answer

Second-degree price discrimination involves pricing based on quantity sold or consumed. Buying in bulk for a lower per-unit price is a classic example of this, as consumers are effectively given a discount for purchasing larger quantities.

Question 17

Which type of price discrimination is as efficient as a competitive firm (that generates the least amount of deadweight loss)?

Accepted Answer

Perfect (first-degree) price discrimination allows the firm to charge each consumer the maximum they are willing to pay, capturing all consumer surplus and eliminating deadweight loss, making it as efficient as a competitive market.

Question 18

If the owner of a concert hall wishes to use third-degree price discrimination to price its tickets at $20, $15, and $10, it should price tickets lower for customers who

Accepted Answer

Customers with more elastic demand are more sensitive to price changes, so lower prices are used to attract these customers.

Question 19

Each of these is an example of third-degree price discrimination EXCEPT

Accepted Answer

The answer of Each of these is an example of...

Question 20

Which of these is a characteristic of a natural monopoly?

Accepted Answer

Natural monopolies are characterized by large economies of scale, where the cost per unit of production decreases as the scale of production increases. This makes it efficient for a single firm to supply the entire market.

Quiz 9: Monopoly

Compared to a competitive industry, a monopolist is likely to achieve _ producer surplus while generating _ deadweight loss.