Question 1

If a monopoly is able to perfectly price discriminate, then consumer surplus is

Accepted Answer

Perfect price discrimination means that the monopolist is charging each consumer their maximum willingness to pay, which leaves no room for any consumer surplus. Therefore, consumer surplus is equal to zero in this scenario, which is the best answer choice.

Question 2

Which of the following must a firm be able to do to successfully price discriminate?
I. divide buyers into different groups according to their willingness to pay
Ii. prevent resale of the good or service
Iii. identify into which group (high willingness to pay or low willingness to pay)a buyer falls

Accepted Answer

To successfully price discriminate, a firm must be able to divide buyers into different groups according to their willingness to pay (I), prevent resale of the good or service (II), and identify into which group (high willingness to pay or low willingness to pay) a buyer falls (III). Therefore, the correct choice is E, which includes all three conditions.

Question 3

________ natural monopolies is a commonly used, potential solution to the problems presented by natural monopolies.

Accepted Answer

Regulating natural monopolies is a commonly used solution to ensure they do not abuse their market power and engage in predatory pricing or other anticompetitive behavior. This can include setting price caps, allowing for competition in certain areas, or requiring the natural monopoly to provide access to their infrastructure to competitors. Breaking up firms or outlawing price discrimination may not address the underlying issue of the high costs of entry and may not lead to increased competition, while refusing to grant patents or giving incentives to become a natural monopoly may not be practical or effective solutions.

Question 4

The social interest theory of regulation asserts that regulation

Accepted Answer

The social interest theory of regulation asserts that regulation seeks an efficient use of resources. This means that the aim of regulation is to ensure that the resources used by firms are utilized in the most efficient manner possible, in a way that maximizes social welfare. It is not aimed at keeping prices as low as possible or helping firms maximize economic profit. Regulation of a natural monopoly need not be done using rate of return regulation in particular, but rather any type of regulation that serves the goal of efficient resource use. The idea that allowing firms freedom from regulation would work better than regulation for society is not a central tenet of the social interest theory of regulation.

Question 5

With perfect price discrimination ________, and production is expanded until marginal revenue equals ________.

Accepted Answer

With perfect price discrimination, the firm can charge each customer the maximum price they are willing to pay which means the demand curve becomes the marginal revenue curve. Additionally, the firm always produces at the point where marginal revenue equals marginal cost in order to maximize profits. Therefore, the correct answer is A where the firm's demand curve becomes its marginal revenue curve and they expand production until marginal revenue equals marginal cost.

Question 6

Under which of the following is consumer surplus zero?

Accepted Answer

In a perfectly price-discriminating monopoly, the seller charges each customer their maximum willingness to pay, which means that there is no surplus for the consumer.

Question 7

The deadweight loss with perfect price discrimination is

Accepted Answer

With perfect price discrimination, the monopolist is able to capture all consumer surplus, resulting in no deadweight loss. This is because the monopolist is able to charge each consumer their maximum willingness to pay, resulting in no inefficiency in the market. Therefore, the deadweight loss with perfect price discrimination is zero.

Question 8

With perfect price discrimination, the level of output

Accepted Answer

With perfect price discrimination, the monopolist charges each individual the maximum price they are willing to pay, which results in each individual buying the exact quantity they desire at a price that equals the marginal cost. This leads to the same amount of output as in a perfectly competitive market, where the price equals the marginal cost and the quantity produced is efficient. Therefore, the answer is C.

Question 9

Which of the following industries is most likely closest to achieving perfect price discrimination?

Accepted Answer

The airline industry is the closest to achieving perfect price discrimination because they can segment customers into different groups based on factors such as time of booking, length of stay, and demand. This allows them to charge different prices for the same product to different customers, maximizing their profits. Additionally, airlines have access to extensive data and sophisticated pricing algorithms, which further enable them to engage in price discrimination.

Question 10

If a monopoly can perfectly price discriminate, then its marginal revenue curve will be

Accepted Answer

When a monopoly can perfectly price discriminate, it charges each consumer the maximum they are willing to pay, effectively capturing the entire area under the demand curve as revenue. This means the marginal revenue, which is the additional revenue from selling one more unit, is exactly equal to the price that consumers are willing to pay for that unit, making the marginal revenue curve the same as the demand curve.

Question 11

When a firm is able to engage in perfect price discrimination, its marginal revenue curve

Accepted Answer

When a firm engages in perfect price discrimination, it is able to charge each consumer their individual maximum willingness to pay, which means that the marginal revenue for each unit sold will be equal to the price. Therefore, the marginal revenue curve will coincide with the demand curve.

Question 12

When a monopoly price discriminates, it

Accepted Answer

When a monopoly price discriminates, it charges different prices to different groups of consumers based on their willingness to pay. This allows the monopoly to convert some consumer surplus into economic profit, as some consumers will pay more than they normally would to avoid going without the good or service. This can increase overall profits for the monopoly, even if it decreases economic profit from previous levels.

Question 13

The social interest theory of regulation is defined as the

Accepted Answer

The social interest theory of regulation aims to ensure an efficient use of resources in society. It recognizes that market failures can occur and that regulations may be necessary to correct these failures and promote social welfare. This theory differs from other theories of regulation that may prioritize the interests of businesses over those of consumers or society as a whole.

Question 14

The social interest theory of regulation assumes that

Accepted Answer

The social interest theory assumes that regulation seeks an efficient use of resources, which ultimately benefits the public interest by preventing market failures, ensuring fair competition, and protecting consumers. This theory does not assume that regulation is against the public interest or that the public is indifferent, and it also recognizes the risk of regulatory capture.

Question 15

Compared to a single-price monopoly, when a monopoly can perfectly price discriminate, the deadweight loss

Accepted Answer

Perfect price discrimination allows a monopoly to charge each individual consumer the maximum amount they are willing to pay, eliminating any deadweight loss. Therefore, compared to a single-price monopoly, the deadweight loss decreases.

Question 16

With perfect price discrimination, a monopoly can extract the ________ price each customer is willing to pay and thereby obtain the entire ________ surplus.

Accepted Answer

With perfect price discrimination, the monopoly can charge each customer the maximum price they are willing to pay for a given unit of the good, which leads to the highest possible price and total revenue for the producer. Additionally, since the producer is capturing the entire consumer surplus, no surplus is left for the consumer.

Question 17

With perfect price discrimination, the quantity of output produced by a monopoly is ________ the quantity produced by a perfectly competitive industry.

Accepted Answer

The answer of With perfect price discrimination, the quantity of...

Question 18

Under which of the following does a monopoly's demand curve become its marginal revenue curve?

Accepted Answer

In a perfectly price discriminating monopoly, the firm charges each consumer the maximum they are willing to pay for each unit, effectively capturing the entire area under the demand curve as revenue. This means the demand curve itself becomes the marginal revenue curve, as each additional unit sold increases revenue by exactly the price the consumer is willing to pay for that unit, with no need to lower the price on previous units sold.

Question 19

Which of the following is (are)price discrimination?
I. charging different prices based on differences in production cost
Ii. charging business flyers a higher airfare than tourists
Iii. charging more for the first pizza than the second

Accepted Answer

Price discrimination involves charging different prices to different consumers for the same product or service, not based on differences in production cost, but rather on what the market will bear. Charging business flyers more than tourists (ii) and charging more for the first pizza than the second (iii) are examples of price discrimination strategies based on consumer willingness to pay and purchase quantity, respectively.

Question 20

The social interest theory of regulation is that

Accepted Answer

The social interest theory of regulation suggests that regulation is necessary to ensure an efficient use of resources in a way that benefits both producers and consumers. Regulation seeks to correct market failures, improve market performance, and protect public interests. Therefore, it does not simply focus on producer or consumer interests but rather seeks to balance the two.

Quiz 12: Monopoly