Question 1

Refer to Scenario 13.2 below to answer the question(s) that follow.
SCENARIO 13.2: The government of Stratospheria is currently inviting investors to bid for the exclusive right to provide cable television service to its residents. The market demand for this service is P=55-0.01Q, where Q is the number of households that would subscribe to the cable service and P is the monthly fee charged to the subscribers. The associated marginal revenue curve is MR=55-0.02Q. Fun Cable Company is interested in bidding for the right to provide cable service in Stratospheria. It has a constant average and marginal cost of $5 for providing cable service to each household.
-Refer to Scenario 13.2. What is the most Fun Cable Company would bid for the franchise?
A) $0
B) $62,500
C) $75,000
D) $112,500

Accepted Answer

The answer of Refer to Scenario 13.2 below to answer...

Question 2

Refer to Scenario 13.2 below to answer the question(s) that follow.
SCENARIO 13.2: The government of Stratospheria is currently inviting investors to bid for the exclusive right to provide cable television service to its residents. The market demand for this service is P=55-0.01Q, where Q is the number of households that would subscribe to the cable service and P is the monthly fee charged to the subscribers. The associated marginal revenue curve is MR=55-0.02Q. Fun Cable Company is interested in bidding for the right to provide cable service in Stratospheria. It has a constant average and marginal cost of $5 for providing cable service to each household.
-Refer to Scenario 13.2. If Fun Cable Company were to be awarded the exclusive right to provide cable service in Stratospheria, how many households would it service?
A) 2,500
B) 2,750
C) 5,500
D) 5,000

Accepted Answer

To maximize profits, Fun Cable Company would set its marginal revenue (MR) equal to its marginal cost (MC). Given MR = 55 - 0.02Q and MC = 5, setting MR = MC gives 55 - 0.02Q = 5. Solving for Q, we get 0.02Q = 50, so Q = 50 / 0.02 = 2,500 households.

Question 3

Refer to the information provided in Table 13.4 below to answer the question(s) that follow.
Table 13.4
 
-Refer to Table 13.4. If a monopoly faces the demand schedule given in the table and has a constant marginal and average cost of $4 per unit of providing the product, then the monopoly maximizes its profits by charging ________ per unit and selling ________ units of output.
A) $12; 5
B) $18; 2
C) $10; 6
D) $16; 3

Accepted Answer

The answer of Refer to the information provided in Table...

Question 4

Refer to the information provided in Table 13.4 below to answer the question(s) that follow.
Table 13.4
 
-Refer to Table 13.4. If a monopoly faces the demand schedule given in the table and has a constant marginal and average cost of $12 per unit of providing the product, then the monopoly maximizes its profits by charging ________ per unit and selling ________ units of output.
A) $12; 5
B) $14; 4
C) $10; 6
D) $16; 3

Accepted Answer

The answer of Refer to the information provided in Table...

Question 5

Monopolists do not have supply curves that are independent of market demand.

Accepted Answer

Monopolists are price-makers, meaning they have control over the price of their goods or services in the market. They can only sell a specific quantity at a specific price, which is determined by the market demand. Therefore, their supply curves are dependent on the market demand.

Question 6

Because the monopolist is the sole producer of a good, it can never incur a loss.

Accepted Answer

The statement is false. Monopolists can incur losses if they have high costs or if there is a decrease in demand for their product.

Question 7

Related to the Economics in Practice on page 273: The idea that all Internet traffic over the networks managed by the Internet service providers be treated the same is called
A) the Fairness Doctrine.
B) open sourcing.
C) net neutrality.
D) internet freedom.

Accepted Answer

Net neutrality is the idea that all Internet traffic over the networks managed by the Internet service providers be treated the same. Option A is not related to this concept. Option B is related to software development and has no relevance to this topic. Option D is a broad concept and not specifically related to the treatment of internet traffic.

Question 8

Refer to the information provided in Table 13.4 below to answer the question(s) that follow.
Table 13.4
 
-Refer to Table 13.4. If a monopoly faces the demand schedule given in the table and has a constant marginal and average cost of $8 per unit of providing the product, then the monopoly maximizes its profits by charging ________ per unit and selling ________ units of output.
A) $12; 5
B) $14; 4
C) $10; 6
D) $18; 2

Accepted Answer

To maximize profits, a monopoly produces where marginal revenue (MR) equals marginal cost (MC). Given a constant MC of $8, we look for the largest price above $8 where reducing the price to sell one more unit increases total revenue. From the table, selling at $14 (4 units) maximizes revenue above the MC of $8, as selling any additional unit (at a lower price) would not increase total revenue proportionally to the cost.

Question 9

If a monopoly earns a loss in the short run and market conditions do not change, then it should exit the industry in the long run.

Accepted Answer

The answer of If a monopoly earns a loss in...

Question 10

Refer to Scenario 13.2 below to answer the question(s) that follow.
SCENARIO 13.2: The government of Stratospheria is currently inviting investors to bid for the exclusive right to provide cable television service to its residents. The market demand for this service is P=55-0.01Q, where Q is the number of households that would subscribe to the cable service and P is the monthly fee charged to the subscribers. The associated marginal revenue curve is MR=55-0.02Q. Fun Cable Company is interested in bidding for the right to provide cable service in Stratospheria. It has a constant average and marginal cost of $5 for providing cable service to each household.
-Refer to Scenario 13.2. If Fun Cable Company were to be awarded the exclusive right to provide cable service in Stratospheria, what price would it charge per household per month?
A) $5.00
B) $27.50
C) $30.00
D) $55.00

Accepted Answer

To maximize profit, Fun Cable Company would set its price where marginal revenue equals marginal cost. 
MR=MC 
55-0.02Q=5 
50=0.02Q 
Q=2500 households 
Then, we can substitute Q into the demand equation to find the corresponding price: 
P=55-0.01Q 
P=55-0.01(2500) 
P=30.00 
Therefore, Fun Cable Company would charge $30.00 per household per month.

Question 11

In perfect competition, price is equal to marginal revenue, while in monopoly, price is greater than marginal revenue.

Accepted Answer

This statement is true. In a perfectly competitive market, price is determined by the market forces of supply and demand, and each firm is a price taker. Therefore, the firm's marginal revenue is equal to the price. In a monopoly, the firm has the power to set the price and will choose a price that maximizes profit. Since the demand curve is downward sloping, the price charged will be higher than the marginal revenue.

Question 12

Refer to Scenario 13.2 below to answer the question(s) that follow.
SCENARIO 13.2: The government of Stratospheria is currently inviting investors to bid for the exclusive right to provide cable television service to its residents. The market demand for this service is P=55-0.01Q, where Q is the number of households that would subscribe to the cable service and P is the monthly fee charged to the subscribers. The associated marginal revenue curve is MR=55-0.02Q. Fun Cable Company is interested in bidding for the right to provide cable service in Stratospheria. It has a constant average and marginal cost of $5 for providing cable service to each household.
-Refer to Scenario 13.2. At what level of output (number of households) is Fun Cable Company's total revenue maximized?
A) 2,500
B) 2,750
C) 5,000
D) Indeterminate from the given information.

Accepted Answer

To find the level of output that maximizes revenue, we need to find the point where MR=MC. The marginal cost is constant at $5 per household. Setting MR=MC, we get 55-0.02Q=5, which gives Q=2500. Therefore, the answer is option B.

Question 13

Related to the Economics in Practice on page 266: When trying to determine the price of a new product, firms sometimes price the product close to the prices of similar products in the market. Firms call this approach
A) price rationing.
B) focus group pricing.
C) test market pricing.
D) benchmark pricing.

Accepted Answer

Benchmark pricing involves setting a price for a product based on the prices of similar products in the market. This approach allows firms to have a competitive price while still making a profit, as customers are less likely to pay significantly more for a new product compared to an existing one with similar features.

Question 14

Because the marginal revenue curve for a monopolist lies below its demand curve, the profit-maximizing price of the monopolist will be above marginal cost.

Accepted Answer

This is true because a monopolist's profit-maximizing output level occurs where marginal revenue equals marginal cost. Since the marginal revenue curve lies below the demand curve, the monopolist will charge a price that is higher than marginal cost in order to maximize profits.

Question 15

Refer to Scenario 13.2 below to answer the question(s) that follow.
SCENARIO 13.2: The government of Stratospheria is currently inviting investors to bid for the exclusive right to provide cable television service to its residents. The market demand for this service is P=55-0.01Q, where Q is the number of households that would subscribe to the cable service and P is the monthly fee charged to the subscribers. The associated marginal revenue curve is MR=55-0.02Q. Fun Cable Company is interested in bidding for the right to provide cable service in Stratospheria. It has a constant average and marginal cost of $5 for providing cable service to each household.
-Refer to Scenario 13.2. If Fun Cable Company were to be awarded the exclusive right to provide cable service in Stratospheria, how much profit would it earn?
A) $0
B) $62,500
C) $75,000
D) $112,500

Accepted Answer

The answer of Refer to Scenario 13.2 below to answer...

Question 16

If an industry realizes significant economies of scale relative to the size of the market, it is most efficient for there to be a single firm in the industry.

Accepted Answer

When an industry experiences significant economies of scale relative to the market size, it means that the cost per unit of production decreases as the volume of production increases. In such cases, a single firm can produce the total output demanded in the market at a lower cost per unit than if there were multiple firms. This leads to a natural monopoly situation, where it is most efficient for one firm to supply the entire market.

Question 17

No supply curve exists for a monopoly in the sense that a supply curve exists for a perfectly competitive firm.

Accepted Answer

A monopoly does not have a supply curve because it is the sole producer and has the power to set the price at which it sells its product. Therefore, the quantity supplied is determined by the profit-maximizing level of output and the corresponding price, rather than a supply curve.

Question 18

The profit-maximizing level of output for a monopolist is the one at which marginal revenue equals marginal cost.

Accepted Answer

This is known as the profit-maximizing condition for a monopolist.

Question 19

The condition for profit-maximization for competitive firms and monopolies is the same: marginal revenue equals marginal cost. Hence, monopolies are efficient.

Accepted Answer

The statement is false. While it is true that the condition for profit-maximization is the same for competitive firms and monopolies, monopolies are not necessarily efficient. Monopolies have the ability to charge higher prices and earn more profit due to their market power, but this can also result in social welfare losses and deadweight loss for society due to reduced consumer surplus and inefficiencies. In contrast, competitive markets promote efficiency through price competition and innovation.

Question 20

A monopoly's supply curve is the portion of the firm's marginal cost curve that lies above the average variable cost curve.

Accepted Answer

The answer of A monopoly's supply curve is the portion...

Quiz 13: Monopoly and Antitrust Policy