Question 1

U.S. Code Title 18 § 1696 states
Whoever establishes any private express for the conveyance of letters or packets, or in any manner causes or provides for the conveyance of the same by regular trips or at stated periods over any post route which is or may be established by law, or from any city, town, or place to any other city, town, or place, between which the mail is regularly carried, shall be fined not more than $500 or imprisoned not more than six months, or both….
The Code of Federal Regulation (CFR) Title 39 Section 310.2 states
It is generally unlawful under the Private Express Statutes for any person other than the Postal Service in any manner to send or carry a letter on a post route or in any manner to cause or assist such activity. Violation may result in injunction, fine or imprisonment or both and payment of postage lost as a result of the illegal activity…
Under these laws, the U.S. Postal Service ________.

Accepted Answer

These laws grant the U.S. Postal Service monopoly power over the conveyance of letters and packets by restricting private entities from operating on established post routes or between cities where the mail is regularly carried, unless specific exceptions apply.

Question 2

U.S. Code Title 18 § 1696 states
Whoever establishes any private express for the conveyance of letters or packets, or in any manner causes or provides for the conveyance of the same by regular trips or at stated periods over any post route which is or may be established by law, or from any city, town, or place to any other city, town, or place, between which the mail is regularly carried, shall be fined not more than $500 or imprisoned not more than six months, or both….
The Code of Federal Regulation (CFR) Title 39 Section 310.2 states
It is generally unlawful under the Private Express Statutes for any person other than the Postal Service in any manner to send or carry a letter on a post route or in any manner to cause or assist such activity. Violation may result in injunction, fine or imprisonment or both and payment of postage lost as a result of the illegal activity…
Under these laws, the U.S. Postal Service has ________.

Accepted Answer

These laws grant the U.S. Postal Service a legal monopoly (or legal market power) in the private express mail market by restricting the ability of others to provide similar services over established post routes.

Question 3

Firm A is a monopoly because of network effects, whereas Firm B is a natural monopoly. Which of the following statements is likely to be true in this context?

Accepted Answer

Firm B is a natural monopoly because its average total cost decreases with increased output, while Firm A is a monopoly due to network effects, meaning the value of its product increases as more consumers use it.

Question 4

When a monopolist charges $10 for its product, it sells 500 units of the product. When it lowers the price to $6, it sells 1,400 units of the product.
-Refer to the scenario above. What is the quantity effect of the price change?

Accepted Answer

The quantity effect is calculated by multiplying the change in quantity sold by the new price: (1,400 - 500) units * $6 = $5,400.

Question 5

The following figure represents the cost and revenue curves of a firm that is producing a service in a monopoly market.
 
-Refer to the figure above. What is the optimal quantity that the monopolist should produce?

Accepted Answer

The optimal quantity for a monopolist is where marginal cost (MC) equals marginal revenue (MR). Typically, this is represented by Q₂ in diagrams where the MR curve intersects the MC curve.

Question 6

The following figure shows the demand curve for Good X in a perfectly competitive market. Later, the government grants one of the firms the exclusive right to manufacture and sell Good X. MR represents the marginal revenue curve of the firm when it operates as a monopoly. The marginal cost of producing Good X is constant at $5.
  a) What is the quantity supplied when the market is perfectly competitive? What happens to the quantity supplied once the market changes to a monopoly?
b) What is the market price when the market is perfectly competitive? What is the market price when the market changes to a monopoly? 
c) Compare the consumer surplus when the market is perfectly competitive and the consumer surplus when the market is a monopoly. Is there any producer surplus or deadweight loss in either case? If yes, then how much?

Accepted Answer

The answer of The following figure shows the demand curve...

Question 7

Tobac Co. is a monopolist in cigarette market in Nicotiana Republic where the U.S. dollar is used as its official currency. The firm faces the demand curve shown below. The firm has a constant marginal cost of $2.00 per pack. The fixed cost of the firm is $50 million. To answer the questions below, it is useful to know that the equation of the (inverse) demand curve is P = 8 - 0.04Q, where Q is the quantity demanded (in millions of packs) and P is the price per pack (in $). Also, you should draw in the marginal revenue curve
 
-Refer to the scenario above. When Tobac Co.'s profit is maximized, each pack of cigarette is sold for________.

Accepted Answer

The profit-maximizing price is typically where marginal cost equals marginal revenue. Without additional data, we assume the scenario indicates $5.00 as the price where profit is maximized.

Question 8

Economist Reuben Kessel wrote an influential article in 1958 analyzing price discrimination by medical care providers. Kessel interviewed several doctors and dentists in Los Angeles, and found that these providers often provided fee-for-service treatment to traveling business professionals but charged each patient a different amount. These health care providers told Kessel they had their receptionists see the make of car the individual was driving when determining the fee (along with other information the provider gleaned about the client). Assume this information revealed each client?s willingness to pay. This is an example of ________.

Accepted Answer

This is an example of first-degree price discrimination because the healthcare providers are charging each patient a different amount based on their perceived willingness to pay, which is determined individually for each client.

Question 9

Peak-load pricing is when a firm charges a different price during the peak (e.g., highest demand) period than during off-peak times, because the marginal cost of providing the good or service during the peak is higher. For example, an electricity producer builds generating capacity to serve peak-period demand but only needs to call on this full capacity during a handful of days of the year. Building capacity to meet peak demand means that there is a discrete change in the marginal cost of providing the good or service across a binding capacity constraint. Is this an example of price discrimination? If so, to which degree? If not, explain why not.

Accepted Answer

Peak-load pricing is not considered price discrimination because the difference in pricing is due to the variation in marginal costs during peak and off-peak periods, not due to differences in consumer willingness to pay.

Question 10

Tobac Co. is a monopolist in cigarette market in Nicotiana Republic where the U.S. dollar is used as its official currency. The firm faces the demand curve shown below. The firm has a constant marginal cost of $2.00 per pack. The fixed cost of the firm is $50 million. To answer the questions below, it is useful to know that the equation of the (inverse) demand curve is P = 8 - 0.04Q, where Q is the quantity demanded (in millions of packs) and P is the price per pack (in $). Also, you should draw in the marginal revenue curve
 
-Tobac Co. is a monopolist in cigarette market in Nicotiana Republic, where the U.S. dollar is used as the official currency. The firm faces the demand curve shown below. The firm has a constant marginal cost of $2.00 per pack. If Tobac Co. could successfully carry out the first-degree (or perfect) price discrimination, the social surplus would ________ and the consumer surplus would be ________.

Accepted Answer

The answer of Tobac Co. is a monopolist in cigarette...

Question 11

What makes World's Fair of 1876, in Philadelphia a natural experiment suitable to study the impact of patent protection on innovation? (The author of the study also used the data from the 1851 Fair in London.)

Accepted Answer

The World's Fair of 1876 in Philadelphia is considered a natural experiment suitable to study the impact of patent protection on innovation because it featured many countries with varying patent laws, and it was difficult to hold a patent outside the country of origin. This setup allowed for the observation of how different patent environments affected the willingness of inventors to innovate and exhibit their inventions, providing a unique opportunity to analyze the impact of patent protection on innovation across different legal frameworks.

Question 12

Why do purely technological theories have difficulty explaining recessions in which real GDP falls?

Accepted Answer

The answer of Why do purely technological theories have difficulty...

Question 13

Country A specializes in the production of automobiles, and 45 percent of its population works in the automobile manufacturing industry. A sharp increase in the world prices of automobiles led to a boom in the automobile manufacturing industry in Country A. However, the automobile manufacturers overestimated the demand for automobiles. This led to overproduction, which resulted in a large stock of unsold cars. Which of the following is likely to happen in the near future?

Accepted Answer

Given that a significant portion of Country A's population is employed in the automobile manufacturing industry, overproduction and the resulting stock of unsold cars would likely lead to cutbacks in production. This, in turn, could lead to layoffs or reduced working hours, thereby increasing the unemployment rate.

Quiz 10: Monopoly and Short-Run Fluctuations

Firm A is a monopoly because of network effects, whereas Firm B is a natural monopoly. Which of the following statements is likely to be true in this context?

When a monopolist charges $10 for its product, it sells 500 units of the product. When it lowers the price to $6, it sells 1,400 units of the product. -Refer to the scenario above. What is the quantity effect of the price change?

The following figure represents the cost and revenue curves of a firm that is producing a service in a monopoly market. -Refer to the figure above. What is the optimal quantity that the monopolist should produce?

What makes World's Fair of 1876, in Philadelphia a natural experiment suitable to study the impact of patent protection on innovation? (The author of the study also used the data from the 1851 Fair in London.)

Why do purely technological theories have difficulty explaining recessions in which real GDP falls?