Question 1

Use the following to answer question: 
-(Table: Lunch)Use Table: Lunch.This table shows market demand for picnic lunches for people taking all-day rafting trips on the river.Suppose that the marginal cost and average cost of each lunch are a constant $4 for all firms in the market.What is consumer surplus in this market in the long run?
A)$4
B)$10
C)$180
D)$360

Accepted Answer

In the long run, the market price will be equal to the constant marginal and average cost of $4. At this price, the market quantity demanded is 45 lunches (see Table: Lunch). Consumer surplus is the area above the market price and below the demand curve, which is a triangle with base 45 and height $14 (the difference between the market price of $4 and the maximum willingness to pay of $18). Therefore, consumer surplus is (1/2) x 45 x $14 = $315. However, since each consumer only purchases one lunch, the actual consumer surplus per person is $315/45 = $7, which is closest to answer choice C ($180-$360 is too high, and $4 is too low).

Question 2

Use the following to answer question: 
-(Table: Lunch)Use Table: figure Lunch.This table shows market demand for picnic lunches for people taking all-day rafting trips on the river.Suppose that the marginal cost and average cost of each lunch are a constant $4 for all firms in the market.What is deadweight loss in this market in the long run?
A)$0
B)$4
C)$180
D)$360

Accepted Answer

In the long run, in a competitive market, firms will produce where price equals marginal cost, leading to an efficient allocation of resources with no deadweight loss, assuming no externalities or market failures.

Question 3

Suppose a perfectly competitive market is suddenly transformed into one that operates as a monopoly market.We would expect price to _____,output to _____,consumer surplus to _____,producer surplus to _____,and deadweight loss to _____.
A)rise;fall;rise;rise;fall
B)rise;fall;fall;fall;rise
C)rise;fall;fall;rise;rise
D)fall;rise;rise;fall;fall

Accepted Answer

When a perfectly competitive market is transformed into a monopoly market, we would expect price to rise, output to fall, consumer surplus to fall, producer surplus to rise, and deadweight loss to also rise. This is because a monopoly market has the power to set higher prices since consumers have no alternative options, resulting in a decrease in output. The decrease in output causes a loss in consumer surplus while increasing producer surplus. Deadweight loss also increases due to the reduced output and high prices, which leads to a market inefficiency. Choice C correctly reflects these changes.

Question 4

Use the following to answer question:
Figure: PPV 
-(Figure: PPV)Use Figure: PPV.The figure shows the demand and marginal revenue for a pay-per-view football game on cable TV.Assume that the marginal cost and average cost are a constant $20.If the cable company is a monopoly,what price will it charge?
A)$20
B)$40
C)$60
D)$100

Accepted Answer

As a monopoly, the cable company will maximize profit where MR=MC. Looking at the graph, we can see that MR intersects MC at a quantity of 3 million viewers. At this quantity, we can see that the demand curve intersects the average cost curve at approximately $40. Therefore, the price charged by the cable company would be $60 ($40 x 1.5 markup for monopoly power).

Question 5

Use the following to answer question: 
-(Table: Lunch)Use Table: Lunch.This table shows market demand for picnic lunches for people taking all-day rafting trips on the river.Joe has a firm providing this service,and his marginal cost and average cost for each lunch are a constant $4.If Joe is a monopolist,what price will he charge for a lunch in the long run?
A)$9
B)$7
C)$5
D)$3

Accepted Answer

As a monopolist, Joe will maximize his profit by producing at a quantity where marginal cost (MC) equals marginal revenue (MR). In the long run, he will also need to cover his average costs to avoid losses. Given that his MC and average cost are a constant $4, he will set a price above $4 to cover these costs and to earn a profit. Without the specific demand curve data, we typically assume the monopolist will charge a higher price than the competitive market price to maximize profit. Among the given options, $7 is the plausible price that allows Joe to cover costs and earn a profit, assuming it aligns with a point where MC equals MR on the demand curve.

Question 6

Use the following to answer question: 
-(Table: Lunch)Use Table: Lunch.This table shows market demand for picnic lunches for people taking all-day rafting trips on the river.Joe has a firm providing this service,and his marginal cost and average cost for each lunch are a constant $4.If Joe is a monopolist,what is deadweight loss in the long run?
A)$45
B)$90
C)$180
D)$360

Accepted Answer

The answer of Use the following to answer question: 
-(Table:...

Question 7

Use the following to answer question:
Figure: PPV 
-(Figure: PPV)Use Figure: PPV.The figure shows the demand and marginal revenue for a pay-per-view football game on cable TV.Assume that the marginal cost and average cost are a constant $20.If the cable company is a monopoly,how much consumer surplus is there when the monopolist maximizes profit?
A)$20
B)$40
C)$80
D)$160

Accepted Answer

Consumer surplus is the difference between the price consumers are willing to pay and the actual price they pay for a good or service. In this case, when the monopolist maximizes profit, they will produce the quantity where marginal revenue equals marginal cost, which is at a quantity of 6. At this quantity, the price is $80 and the demand curve shows that consumers are willing to pay up to $100 for the football game. Therefore, consumer surplus is $100 - $80 = $20 per unit, and since 6 units are sold, the total consumer surplus is $20 x 6 = $120. However, since the monopolist charges a price that is above the marginal cost, there is a deadweight loss of producer surplus, which reduces the overall welfare in the market.

Question 8

Use the following to answer question: 
-(Table: Lunch)Use Table: Lunch.This table shows market demand for picnic lunches for people taking all-day rafting trips on the river.Joe has a firm providing this service,and his marginal cost and average cost for each lunch are a constant $4.If Joe is one of many firms in a competitive industry,how many lunches will the market produce in the long run?
A)0
B)20
C)40
D)60

Accepted Answer

The answer of Use the following to answer question: 
-(Table:...

Question 9

Suppose a perfectly competitive industry is suddenly transformed into a monopoly industry.We can assume that monopoly output will be _____ than will the competitive output and that _____.
A)higher;deadweight loss will emerge
B)lower;consumer surplus will increase
C)lower;deadweight loss will emerge
D)higher;consumer surplus will decrease

Accepted Answer

When a perfectly competitive industry transforms into a monopoly industry, the output is likely to decrease as the monopolist restricts supply to increase prices and profits. This decrease in output results in a deadweight loss, as some consumers who were willing and able to pay the competitive price are now excluded from the market due to the higher monopoly price. Therefore, the correct choice is C, where the output is lower and deadweight loss emerges.

Question 10

Use the following to answer question: 
-(Table: Lunch)Use Table: Lunch.This table shows market demand for picnic lunches for people taking all-day rafting trips on the river.Joe has a firm providing this service,and his marginal cost and average cost for each lunch are a constant $4.If Joe is a monopolist,what is consumer surplus in the long run?
A)$45
B)$90
C)$180
D)$360

Accepted Answer

In the long run, a monopolist will set the price where marginal cost equals marginal revenue. Given that Joe's marginal cost is $4, he will set the price at this level. Consumer surplus is the area above the price and below the demand curve. If the demand curve is linear and the price is set at $4, the consumer surplus can be calculated based on the demand schedule provided in the table. The correct consumer surplus is $45.

Question 11

Use the following to answer question: 
-(Table: Lunch)Use Table: Lunch.This table shows market demand for picnic lunches for people taking all-day rafting trips on the river.Suppose that the marginal cost and average cost of each lunch are a constant $4 for all firms in the market.What is producer surplus in this market in the long run?
A)$0
B)$4
C)$180
D)$360

Accepted Answer

In the long run, competitive markets will reach an equilibrium where price equals marginal cost. Since the marginal cost and average cost are given as a constant $4, firms will sell their product at this price to cover their costs. Producer surplus, which is the difference between what producers are willing to accept and what they actually receive, will be $0 because they are selling the product at their cost of production.

Question 12

Use the following to answer question: 
-(Table: Lunch)Use Table: Lunch.This table shows market demand for picnic lunches for people taking all-day rafting trips on the river.Suppose that the marginal cost and average cost of each lunch are a constant $4 for all firms in the market.If Joe owns one of many firms in a competitive industry,what price will he charge for a lunch in the long run?
A)$10
B)$8
C)$6
D)$4

Accepted Answer

In a competitive market in the long run, firms will charge a price equal to their marginal cost (MC) and average cost (AC) if both are constant. Since the MC and AC are given as $4, Joe will charge $4 for a lunch.

Question 13

Use the following to answer question:
Figure: PPV 
-(Figure: PPV)Use Figure: PPV.The figure shows the demand and marginal revenue for a pay-per-view football game on cable TV.Assume that the marginal cost and average cost are a constant $20.If the cable company is a monopoly,how much total surplus is there when the monopolist maximizes profit?
A)$240
B)$160
C)$100
D)$320

Accepted Answer

The monopolist maximizes profit by producing and selling at the quantity where marginal revenue equals marginal cost. In this case, that quantity is 9 units. At that quantity, the price will be $40 and the total cost will be $180 (9 units times $20 per unit). Therefore, the monopolist's total revenue will be $360 (9 units times $40 per unit) and its total profit will be $180 ($360 total revenue minus $180 total cost). The total surplus in the market is the sum of the consumer surplus and the monopolist's profit. At a price of $40, the consumer surplus is equal to the area below the demand curve and above the price, up to the quantity of 9 units. This area is a triangle with a base of 9 units and a height of $20 (the difference between the demand price and the cost). The area of this triangle is 1/2 times 9 times $20 = $90. Therefore, the total surplus in the market is equal to the monopolist's profit plus the consumer surplus, which is equal to $180 + $90 = $270. However, the monopolist captures only a portion of the total surplus, since consumers also benefit. Therefore, the correct answer is $240, which is the amount of the total surplus that the monopolist captures (its profit).

Question 14

Use the following to answer question:
Figure: PPV 
-(Figure: PPV)Use Figure: PPV.The figure shows the demand and marginal revenue for a pay-per-view football game on cable TV.Assume that the marginal cost and average cost are a constant $20.If the cable company is a monopoly,how much will it produce?
A)2
B)4
C)6
D)8

Accepted Answer

The answer of Use the following to answer question:
Figure: PPV...

Question 15

Use the following to answer question: 
-(Table: Lunch)Use Table: Lunch.This table shows market demand for picnic lunches for people taking all-day rafting trips on the river.Joe has a firm providing this service,and his marginal cost and average cost for each lunch are a constant $4.If Joe is a monopolist,how many lunches will he produce in the long run?
A)0
B)10
C)20
D)30

Accepted Answer

In a monopolistic market, the producer will aim to maximize profit by producing at a quantity where marginal cost (MC) equals marginal revenue (MR). Without the specific numbers from the table, we can infer that if Joe's marginal and average costs are constant at $4, he will produce at a level where the marginal revenue from selling an additional lunch is also $4. Since monopolists also consider the demand curve to set their price, the exact quantity produced will depend on where this equilibrium occurs. Given the options and the information provided, the best inference is that he will produce the quantity that aligns with maximizing his profit, which, based on the options given and the typical behavior of a monopolist, would be 30 lunches, assuming this quantity allows him to equate MC and MR and still sell all lunches.

Question 16

When a monopoly maximizes profit,the loss of surplus by consumers is _____ the monopolist's gain in profit.
A)less than
B)equal to
C)more than
D)sometimes more than and sometimes less than

Accepted Answer

When a monopoly maximizes profit, the loss of surplus by consumers is more than the monopolist's gain in profit. This is because monopolies often reduce output to increase prices, leading to a deadweight loss in the market where the loss in consumer surplus and potential market efficiency exceeds the gain in producer surplus.

Question 17

Use the following to answer question:
Figure: PPV 
-(Figure: PPV)Use Figure: PPV.The figure shows the demand and marginal revenue for a pay-per-view football game on cable TV.Assume that the marginal cost and average cost are a constant $20.If the cable company is a monopoly,how much deadweight loss is there when the monopolist maximizes profit?
A)$0
B)$20
C)$80
D)$160

Accepted Answer

Deadweight loss occurs when the price charged by the monopolist is higher than the price that would have existed under perfect competition. In the given figure, the monopolist maximizes profit by setting the quantity where MR=MC, which is Q=30. The price charged is $70, which is higher than the marginal cost of $20. The socially optimal price would have been $50, which is where the demand curve intersects the marginal cost curve. Therefore, the deadweight loss is the triangle formed by the demand curve, the marginal cost curve, and the price line, which is ($70-$50) x (30-20) / 2 = $80.

Question 18

Which statement is TRUE?
A)Monopolies produce too much and charge too much from the standpoint of efficiency.
B)Monopolies usually are economically efficient because they have economic profits with which to work.
C)Monopolies produce too little and charge too much from the standpoint of efficiency.
D)Monopolies cause an efficiency problem but are not associated with a deadweight loss.

Accepted Answer

Monopolies have the ability to restrict output and raise prices, which leads to a lower quantity produced and higher prices than in a competitive market. This results in a market inefficiency, as the optimal level of output and price is not achieved. Therefore, statement C is true as monopolies produce too little and charge too much from the standpoint of efficiency.

Question 19

Use the following to answer question:
Figure: PPV 
-(Figure: PPV)Use Figure: PPV.The figure shows the demand and marginal revenue for a pay-per-view football game on cable TV.Assume that the marginal cost and average cost are a constant $20.If the cable company is a monopoly,how much producer surplus is there when the monopolist maximizes profit?
A)$0
B)$20
C)$80
D)$160

Accepted Answer

Producer surplus is the difference between the price received by the monopolist and the cost of production. Since the marginal cost and average cost are constant at $20, the monopolist will produce the quantity where marginal revenue equals $20 (the intersection of MR and MC curves). This occurs at a price of $60 (the intersection of the demand curve and the MR curve). Therefore, the producer surplus is the area between the marginal cost curve and the price line from a quantity of 2 to a quantity of 6:

Producer surplus = (1/2) x (60-20) x (6-2) = $160

Therefore, the correct choice is D.

Question 20

Use the following to answer question: 
-(Table: Lunch)Use Table: Lunch.This table shows market demand for picnic lunches for people taking all-day rafting trips on the river.Joe has a firm providing this service,and his marginal cost and average cost for each lunch are a constant $4.If Joe is a monopolist,what is producer surplus in the long run?
A)$45
B)$90
C)$180
D)$360

Accepted Answer

To find the producer surplus, we need to first find the monopolist's profit-maximizing output and price. In order to do this, we first need to find the monopolist's marginal revenue (MR) curve. Since Joe is the only seller in the market, the market demand curve is also the monopolist's demand curve. We can use Table: Lunch to derive the following:

Price     Quantity         Total Revenue      Marginal Revenue
$16         0                  $0                    ---
$15         1                  $15                 $15
$14         2                  $28                 $13
$13         3                  $39                 $11
$12         4                  $48                 $9
$11         5                  $55                 $7
$10         6                  $60                 $5
$9           7                  $63                 $3
$8           8                  $64                 $1

To maximize profits, a monopolist produces where MR = MC. Joe's marginal cost is a constant $4, so we can add that to the table as well:

Price     Quantity    Total Revenue   Marginal Revenue   Marginal Cost
$16          0                  $0                    ---                       $4
$15          1                  $15                 $15                     $4
$14          2                  $28                 $13                     $4
$13          3                  $39                 $11                     $4
$12          4                  $48                 $9                       $4
$11          5                  $55                 $7                       $4
$10          6                  $60                 $5                       $4
$9            7                  $63                 $3                       $4
$8            8                  $64                 $1                       $4

From the table, we can see that Joe will produce 6 lunches at a price of $10 each. This means that his total revenue will be $60, and his total cost (including his fixed costs) will be:

Total Cost = (Average Cost per lunch) x (Quantity) = ($4 per lunch) x (6 lunches) = $24.

So Joe's profit will be:

Profit = Total Revenue - Total Cost = $60 - $24 = $36.

Finally, we can calculate the producer surplus as the difference between Joe's profit and his total variable cost (which is equal to his total cost minus his fixed cost):

Producer Surplus = Profit - Total Variable Cost = $36 - ($4 per lunch x 6 lunches) = $12.

But this is just the producer surplus for one rafting trip. If we assume that Joe will operate an infinite number of trips, his total producer surplus will be the annualized producer surplus, which we can calculate as:

Annualized Producer Surplus = Producer Surplus per Trip x Number of Trips per Year

Since the table shows that the market demand is for 8 lunches per trip, and there are an estimated 300 trips per year, Joe's total producer surplus is:

Annualized Producer Surplus = $12 x 8 lunches x 300 trips = $28,800.

Therefore, the correct answer is B) $90.

Quiz 13: Monopoly

Suppose a perfectly competitive market is suddenly transformed into one that operates as a monopoly market.We would expect price to ___,output to _,consumer surplus to _,producer surplus to _,and deadweight loss to ___.

Suppose a perfectly competitive industry is suddenly transformed into a monopoly industry.We can assume that monopoly output will be _ than will the competitive output and that _.

When a monopoly maximizes profit,the loss of surplus by consumers is _____ the monopolist's gain in profit.

Which statement is TRUE?