Question 1

Which of the following is NOT an example of the hurdle method of price discrimination?
A)A coupon for $10 off any purchase of $50 or higher.
B)A mail-in rebate on a printer.
C)An early-bird discount for people who order dinner before 5pm.
D)A lower price on strawberries when they are in season.

Accepted Answer

The lower price on strawberries is available to all buyers and is the result of an increase in supply.

Question 2

Under cost-plus regulation, a regulated firm is permitted to charge prices that cover the explicit cost of production plus a markup to cover the:
A)opportunity cost of the resources supplied by the firm's owners.
B)extra cost associated with the state ownership of natural monopolies.
C)cost of winning a government contract.
D)owner's economic rent.

Accepted Answer

Cost-plus regulation is a method of regulation under which the regulated firm is permitted to charge prices that cover the explicit cost of production plus a markup to cover the opportunity cost of the resources supplied by the firm's owners.

Question 3

One problem with antitrust laws is that they:
A)are too recent to be understood by most lawyers.
B)encourage too many mergers.
C)blunt firms' incentives to cut costs.
D)may prevent companies from achieving economies of scale.

Accepted Answer

By breaking up large companies and discouraging mergers between companies in the same industry, antitrust laws may prevent firms from achieving economies of scale.

Question 4

Relative to a single price monopolist, a price discriminating monopolist generates:
A)less total surplus.
B)more total surplus.
C)the same amount of total surplus, but more consumer surplus and less producer surplus.
D)the same amount of total surplus, but less consumer surplus and more producer surplus.

Accepted Answer

Price discrimination brings the level of output closer to the socially optimal quantity.

Question 5

Monopolists use the hurdle method of price discrimination in order to:
A)separate consumers on the basis of their reservation prices.
B)lower their marginal cost.
C)increase the demand for their good.
D)produce the socially optimal level of output.

Accepted Answer

The hurdle method of price discrimination seeks to segregate buyers on the basis of their reservation prices.

Question 6

One problem with government ownership of natural monopolies is that:
A)the government has no reason to set price equal to marginal cost.
B)the government could violate its own antitrust laws.
C)government-owned firms have weaker incentives to cut costs than do privately-owned firms.
D)it forces the government to either raise taxes or lower spending.

Accepted Answer

Unlike a private monopoly, a government-owned monopoly is not motivated to cut its cost in order to increase its profit.

Question 7

One problem with cost-plus regulation is that:
A)there is no way for a regulated firm's owners to recoup their opportunity costs.
B)it blunts regulated firms' incentives to cut costs.
C)government ownership is often inefficient.
D)consumers would be willing to pay more for higher quality goods.

Accepted Answer

Cost-plus regulation blunts firms' incentives to cut costs because if a firm adopts cost-saving innovations, the government will force the firm to lower its prices.

Quiz 8: Monopoly, Oligopoly, and Monopolistic Competition

Which of the following is NOT an example of the hurdle method of price discrimination?

Under cost-plus regulation, a regulated firm is permitted to charge prices that cover the explicit cost of production plus a markup to cover the:

One problem with antitrust laws is that they:

Relative to a single price monopolist, a price discriminating monopolist generates:

Monopolists use the hurdle method of price discrimination in order to:

One problem with government ownership of natural monopolies is that:

One problem with cost-plus regulation is that: