Deck 26: Monopoly Behavior

Question 1

A monopolist is able to practice third-degree price discrimination between two markets.The demand function in the first market is q = 500 - 2p and the demand function in the second market is q = 1,500 - 6p.To maximize his profits, he should

A)charge a higher price in the second market than in the first.
B)charge a higher price in the first market than in the second.
C)charge the same price in both markets.
D)sell only in one of the two markets.
E)None of the above.

Answer 1

charge the same price in both markets.

Question 2

A monopolist finds that a person's demand for its product depends on the person's age.The inverse demand function of someone of age y can be written p = A(y)- q, where A(y)is an increasing function of y.The product cannot be resold from one buyer to another and the monopolist knows the ages of its consumers.If the monopolist maximizes its profits,

A)older people will pay higher prices and purchase less of this product.
B)older people will pay higher prices and purchase more of this product.
C)older people will pay lower prices and purchase more of this product.
D)everyone will pay the same price but older people will consume more.
E)None of the above

Answer 2

older people will pay higher prices and purchase more of this product.

Question 3

A price-discriminating monopolist sells in two separate markets such that goods sold in one market are never resold in the other.It charges p₁ = $4 in one market and p₂ = $8 in the other market.At these prices, the price elasticity in the first market is -1.90 and the price elasticity in the second market is 20.30.Which of the following actions is sure to raise the monopolist's profits?

A)Raise p₂.
B)Raise p₁ and lower p₂.
C)Lower p₂.
D)Raise both p₁ and p₂.
E)Raise p₂ and lower p₁.

Answer 3

Raise p₂.

Question 4

Third-degree price discrimination occurs when a monopolist sells output to different people at different prices but every unit that an individual buys costs the same amount.

Question 5

In a monopolistically competitive industry with zero profits, each firm will produce less than the amount that minimizes average costs.

Question 6

In order to maximize his profits, a monopolist who practices third-degree price discrimination with two or more markets should charge higher prices in markets with more inelastic demand functions.

Question 7

A monopolist who is able to practice third-degree price discrimination charges a higher price in the market that is more elastic.

Question 8

A monopolist has discovered that the inverse demand function of a person with income M for the monopolist's product is p = .002 M -0 q.The monopolist is able to observe the incomes of its consumers and to practice price discrimination according to income (second-degree price discrimination).The monopolist has a total cost function, c(q)= 100q.The price it will charge a consumer depends on the consumer's income, M, according to the formula

A)p = .001 M + 50.
B)p = .002 M - 100.
C)p = M ².
D)p = .01 M ² + 100.
E)None of the above.

Question 9

A price-discriminating monopolist sells in two separate markets such that goods sold in one market are never resold in the other.It charges p₁ = $2 in one market and p₂ = $8 in the other market.At these prices, the price elasticity in the first market is -2.20 and the price elasticity in the second market is -0.10.Which of the following actions is sure to raise the monopolist's profits?

A)Lower p₂.
B)Raise p₂.
C)Raise both p₁ and p₂.
D)Raise p₁ and lower p₂.
E)Raise p₂ and lower p₁.

Question 10

A monopolist sells in two markets.The demand curve for her product is given by p₁ = 122 - 2x₁ in the first market and p₂ = 306 - 5x₂ in the second market, where x_i is the quantity sold in market i and p_i is the price charged in market i.She has a constant marginal cost of production, c = 6, and no fixed costs.She can charge different prices in the two markets.What is the profit-maximizing combination of quantities for this monopolist?

A)x₁ = 58 and x₂ = 32.
B)x₁ = 29 and x₂ = 30.
C)x₁ = 59 and x₂ = 29.
D)x₁ = 39 and x₂ = 28.
E)x₁ = 49 and x₂ = 40.

Question 11

A monopolist who is able to practice third-degree price discrimination will make greater profits than a monopolist who is able to practice first-degree price discrimination.

Question 12

A price-discriminating monopolist charges p₁ in market 1 and p₂ in market 2.If p₁ > p₂, the absolute value of the price elasticity in market 1 at price p₁ must be smaller than the absolute value of the price elasticity in market 2 at price p₂.

Question 13

A profit-maximizing monopolist practices third-degree price discrimination.If he charges p₁ in market 1 and p₂ in market 2, where p₁ > p₂, then if the law forced him to charge the same price in both markets, more would be demanded in market 1 than in market 2.

Question 14

A discriminating monopolist is able to charge different prices in two different markets.If when the same price is charged in both markets, the quantity demanded in market 1 is always greater than the quantity demanded in market 2, then in order to maximize profits, the monopolist should charge a higher price in market 1 than in market 2.

Question 15

Wobble's Weebles is the only producer of weebles.It makes weebles at constant marginal cost c(where c > 0)and sells them at a price of p₁ per weeble in market 1 and at a price of p₂ per weeble in market 2.The demand curve for weebles in market 1 has a constant price elasticity of demand equal to -2.The demand curve for weebles in market 2 has a constant price elasticity equal to -3/2.The ratio of the profit-maximizing price in market 1 to the profit-maximizing price in market 2 is

A)2/3.
B)1/3.
C)3/2.
D)3.
E)dependent on the value of c.

Question 16

It is possible that a profit-maximizing monopolist who is able to practice first-degree (perfect)price discrimination would sell a quantity x such that the demand curve for his product is inelastic when the quantity sold is x.

Question 17

A profit-maximizing monopolist is able to practice third-degree price discrimination.If he charges p₁ in market 1 and p₂ in market 2, where p₁ > p₂, the quantity sold in market 1 must be smaller than the quantity sold in market 2.

Question 18

A monopolist sells in two markets.The demand curve for her product is given by p₁ = 141 - 3x₁ in the first market and p₂ = 115 - 2x₂ in the second market, where x_i is the quantity sold in market i and p_i is the price charged in market i.She has a constant marginal cost of production, c = 3, and no fixed costs.She can charge different prices in the two markets.What is the profit-maximizing combination of quantities for this monopolist?

A)x₁ = 46 and x₂ = 30.
B)x₁ = 51 and x₂ = 23.
C)x₁ = 23 and x₂ = 28.
D)x₁ = 33 and x₂ = 26.
E)x₁ = 43 and x₂ = 38.

Question 19

A monopolist sells in two markets.The demand curve for her product is given by p₁ = 165 - 3x₁ in the first market and p₂ = 233 - 4x₂ in the second market, where x_i is the quantity sold in market i and p_i is the price charged in market i.She has a constant marginal cost of production, c = 9, and no fixed costs.She can charge different prices in the two markets.What is the profit-maximizing combination of quantities for this monopolist?

A)x₁ = 26 and x₂ = 28.
B)x₁ = 54 and x₂ = 26.
C)x₁ = 36 and x₂ = 26.
D)x₁ =52 and x₂ = 30.
E)x₁ = 46 and x₂ = 38.

Question 20

A price-discriminating monopolist sells in two separate markets such that goods sold in one market are never resold in the other.It charges p₁ = $5 in one market and p₂ = $10 in the other market.At these prices, the price elasticity in the first market is -1.40 and the price elasticity in the second market is -0.10.Which of the following actions is sure to raise the monopolist's profits?

A)Lower p₂.
B)Raise p₂.
C)Raise p₁ and lower p₂.
D)Raise both p₁ and p₂.
E)Raise p₂ and lower p₁.

Question 21

A careful analysis of demand for Bubbles in Strasburg, North Dakota, reveals a strange segmentation in the market.(Recall Bubbles is the beverage which produces an unexplained craving for Lawrence Welk's music.It is produced by the process Q= min{R/5, W }, where R is the number of pulverized Lawrence Welk records and W is gallons of North Dakota well water.P_R = $1, P_W = $4.)If demand for Bubbles by senior citizens is described by Q₀ = 500P^-3/2 while demand by those under 65 years old is Q_y = 50P^-5, how should Bubbles be priced to maximize profits?

A)$13 for all citizens of Strasburg
B)$9 for senior citizens and $30 for those younger
C)$27 for senior citizens and $11.25 for those younger
D)$13.50 for senior citizens and $45 for those younger
E)$60 for senior citizens and $25 for those younger

Question 22

Bayerische Motoren Werk (BMW)charges a considerably higher price for its automobiles in the North American market than it does in its home market of Europe.Assuming that the goal of BMW's pricing policy is profit maximization, which of the following would be a plausible explanation for BMW's pricing policy?

A)The income elasticity of demand in North America must be greater than 1, making BMWs a luxury good in North America, and between 0 and 1 in Europe, making BMWs a normal good there.
B)The income elasticity of demand in North America must be between 0 and 1, making BMWs a normal good in North America, and less than 0 in Europe, making BMWs an inferior good there.
C)The price elasticity of demand in North America must be greater than 1, making the demand for BMWs price elastic in North America, and between 0 and 1 in Europe, making the demand for BMWs price inelastic there.
D)The income elasticity of demand in both North America and Europe is greater than 1, since BMWs are a luxury good, but per capita income in North America is much higher than in Europe.
E)The price elasticity of demand is greater than 1 in both North America and Europe, making BMWs price elastic, but it must be higher in Europe.

Question 23

Roach Motors has a monopoly on used cars in Enigma, Ohio.By installing secret microphones in the showroom, the friendly salespersons at Roach are able to learn each customer's willingness to pay and can therefore practice first-degree price discrimination, extracting from each customer his entire consumer's surplus.The inverse demand function for cars in Enigma is P = 2,000 - 10Q.Roach Motors purchases its stock of used cars at an auction in Cleveland for $500 each.Roach motors will

A)sell 150 cars for a total profit of $112,500.
B)sell 75 cars for a total profit of $56,250.
C)sell 150 cars at a price of $300 a car.
D)sell 180 cars and make a total profit of $180,000.
E)shut down since revenue will not cover variable costs.

Question 24

Roach Motors has a monopoly on used cars in Enigma, Ohio.By installing secret microphones in the showroom, the friendly salespersons at Roach are able to learn each customer's willingness to pay and can therefore practice first-degree price discrimination, extracting from each customer his entire consumer's surplus.The inverse demand function for cars in Enigma is P = 2,000 - 10Q.Roach Motors purchases its stock of used cars at an auction in Cleveland for $600 each.Roach motors will

A)sell 140 cars at a price of $300 a car.
B)sell 70 cars for a total profit of $49,000.
C)sell 140 cars for a total profit of $98,000.
D)sell 168 cars and make a total profit of $156,800.
E)shut down since revenue will not cover variable costs.

Question 25

Miron Floren, of Lawrence Welk Show fame, now tours the country performing at accordion concerts.A careful analysis of demand for tickets to Mr.Floren's concerts reveals a strange segmentation in the market.Demand for tickets by senior citizens is described by Q₀= 500P^-3/2 while demand by those under 65 years old is Q_y = 50P^-4.If the marginal cost of a ticket is $3, how should tickets to Mr.Floren's concerts be priced to maximize profits?

A)$9 for senior citizens and $4 for those younger
B)$12 for senior citizens and $4.50 for those younger
C)$3 for senior citizens and $8 for those younger
D)$4.71 for all tickets
E)$6 for senior citizens and $12 for those younger

Question 26

A monopolist has a constant marginal cost of $2 per unit and no fixed costs.He faces separate markets in the United States and England.He can set one price p₁ for the U.S.market and another price p₂ for the English market.If demand in the United States is given by Q₁ = 6,000 - 600p₁ and demand in England is given by Q₂ = 2,400 - 400p₂, then the price in the United States will

A)be larger than the price in England by $2.
B)be smaller than the price in England by $2.
C)equal the price in England.
D)be larger than the price in England by $4.
E)be smaller than the price in England by $4.

Question 27

Roach Motors has a monopoly on used cars in Enigma, Ohio.By installing secret microphones in the showroom, the friendly salespersons at Roach are able to learn each customer's willingness to pay and can therefore practice first-degree price discrimination, extracting from each customer his entire consumer's surplus.The inverse demand function for cars in Enigma is P = 2,000 - 10Q.Roach Motors purchases its stock of used cars at an auction in Cleveland for $500 each.Roach motors will

A)sell 75 cars for a total profit of $56,250.
B)sell 150 cars at a price of $300 a car.
C)sell 150 cars for a total profit of $112,500.
D)sell 180 cars and make a total profit of $180,000.
E)shut down since revenue will not cover variable costs.

Question 28

A monopolist has a constant marginal cost of $2 per unit and no fixed costs.He faces separate markets in the United States and England.He can set one price p₁ for the U.S.market and another price p₂ for the English market.If demand in the United States is given by Q₁ = 7,000 - 700p₁ and demand in England is given by Q₂ = 1,200 - 200p₂, then the price in the United States will

A)equal the price in England.
B)be smaller than the price in England by $2.
C)be larger than the price in England by $4.
D)be larger than the price in England by $2.
E)be smaller than the price in England by $4.

Question 29

A monopolist has a constant marginal cost of $2 per unit and no fixed costs.He faces separate markets in the United States and England.He can set one price p₁ for the U.S.market and another price p₂ for the English market.If demand in the United States is given by Q₁ = 7,000 - 700p₁ and demand in England is given by Q₂ = 3,200 - 400p₂, then the price in the United States will

A)be smaller than the price in England by $1.
B)be larger than the price in England by $3.
C)equal the price in England.
D)be larger than the price in England by $1.
E)be smaller than the price in England by $3.

Question 30

A careful analysis of demand for Bubbles in Strasburg, North Dakota, reveals a strange segmentation in the market.(Recall Bubbles is the beverage which produces an unexplained craving for Lawrence Welk's music.It is produced by the process Q = min{R/3, W }, where R is the number of pulverized Lawrence Welk records and W is gallons of North Dakota well water.P_R = $1, P_W = $5.)If demand for Bubbles by senior citizens is described by Q₀ = 500P^-3/2while demand by those under 65 years old is Q_y=50P^-5, how should Bubbles be priced to maximize profits?

A)$24 for senior citizens and $10 for those younger
B)$12 for senior citizens and $40 for those younger
C)$8 for senior citizens and $26.67 for those younger
D)$11.56 for all citizens of Strasburg
E)$45 for senior citizens and $18.75 for those younger

Question 31

A careful analysis of demand for Bubbles in Strasburg, North Dakota, reveals a strange segmentation in the market.(Recall Bubbles is the beverage which produces an unexplained craving for Lawrence Welk's music.It is produced by the process Q =min{R/4, W}, where R is the number of pulverized Lawrence Welk records and W is gallons of North Dakota well water.P_R = $1, P_W = $4.)If demand for Bubbles by senior citizens is described by Q₀ = 500P^-3/2 while demand by those under 65 years old is Q_y = 50P^-4, how should Bubbles be priced to maximize profits?

A)$12 for senior citizens and $32 for those younger
B)$12.57 for all citizens of Strasburg
C)$24 for senior citizens and $10.67 for those younger
D)$8 for senior citizens and $21.33 for those younger
E)$48 for senior citizens and $21.33 for those younger

Question 32

Miron Floren, of Lawrence Welk Show fame, now tours the country performing at accordion concerts.A careful analysis of demand for tickets to Mr.Floren's concerts reveals a strange segmentation in the market.Demand for tickets by senior citizens is described by Q₀ = 500P^-3/2 while demand by those under 65 years old is Q_y = 50P^-4.If the marginal cost of a ticket is $4, how should tickets to Mr.Floren's concerts be priced to maximize profits?

A)$16 for senior citizens and $6 for those younger
B)$12 for senior citizens and $5.33 for those younger
C)$6.29 for all tickets
D)$4 for senior citizens and $10.67 for those younger
E)$8 for senior citizens and $16 for those younger

Question 33

Disneyland has two possibilities for pricing rides at its theme parks: (1)Set MR = MC for each ride and charge the maximum price consumers will bear.(2)Charge an admission fee to the theme park but allow unlimited rides for free.Using graphs, show which pricing scheme is more profitable for Disneyland.

Question 34

Miron Floren, of Lawrence Welk Show fame, now tours the country performing at accordion concerts.A careful analysis of demand for tickets to Mr.Floren's concerts reveals a strange segmentation in the market.Demand for tickets by senior citizens is described by Q₀= 500P^-3/2 while demand by those under 65 years old is Q_y =50P^-5.If the marginal cost of a ticket is $3, how should tickets to Mr.Floren's concerts be priced to maximize profits?

A)$15 for senior citizens and $4.50 for those younger
B)$4.33 for all tickets
C)$9 for senior citizens and $3.75 for those younger
D)$3 for senior citizens and $10 for those younger
E)$6 for senior citizens and $12 for those younger