Question 1

One similarity between a monopolist and a perfectly competitive firm is that both

Accepted Answer

Both a monopolist and a perfectly competitive firm may have similarly shaped cost curves. The main difference is that a monopolist faces a downward-sloping demand curve, while a perfectly competitive firm faces a horizontal demand curve.

Question 2

The diagram below shows a pharmaceutical firm's demand curve and marginal cost curve for a new heart medication for which the firm holds a 20- year patent on its production.  FIGURE 10- 5
-Refer to Figure 10- 5. Assume this pharmaceutical firm charges a single price for its drug. At its profit- maximizing level of output it will produce

Accepted Answer

At the profit-maximizing level of output, the firm will produce Q0 units and charge a price of p0. This is because at this point, the marginal revenue equals the marginal cost.

Question 3

The figure below shows the demand schedule and demand curve for a product produced by a single- price monopolist. $\begin{array}{ll}&\text { Quantity }\
\text { Price (\$) }&\text { Demanded }\
8 & 5 \
7 & 6 \
6 & 7 \
5 & 8 \
4 & 9 \
3 & 10 \
2 & 11
\end{array}$
 FIGURE 10- 1
-Refer to Figure 10- 1. What is the lowest level of output at which marginal revenue becomes negative?

Accepted Answer

Marginal revenue becomes negative when the additional unit of output decreases total revenue. This typically occurs when the demand curve is downward sloping, and the price reduction needed to sell an additional unit results in a loss greater than the gain from selling that unit. In this context, the 7th unit is the point where marginal revenue turns negative.

Question 4

At the profit- maximizing level of output for a single- price monopolist, price

Accepted Answer

A single-price monopolist maximizes profits by producing at the level of output where marginal revenue equals marginal cost. However, the price charged for that level of output will exceed marginal cost. This is because the monopolist faces a downward-sloping demand curve and must lower the price on all units sold in order to sell additional units. Thus, the profit-maximizing price will be higher than the marginal cost at the profit-maximizing quantity.

Question 5

One of the reasons cartels are considered unstable is that

Accepted Answer

Cartels rely on all members agreeing to limit production and raise prices in order to maximize profits. However, individual members may have an incentive to cheat on the agreement by producing more than their allocated share in order to gain a bigger share of the market and boost their own profits. This can lead to a breakdown in the cartel and instability in the market.

Question 6

A number of firms agreeing together to restrict output and thereby raise prices is known as

Accepted Answer

A group of firms that collude to restrict output and raise prices is known as a cartel. This is typically done by setting production quotas for each member of the cartel, which limits the overall supply of the good or service in question. The most well-known example of a cartel is OPEC, the group of oil-producing nations that work together to control the global price of oil. Cartels are generally seen as anti-competitive and are often regulated by governments to prevent them from unfairly manipulating markets.

Question 7

Suppose a monopolist faces the demand curve and cost curves shown below.  FIGURE 10- 4
-Refer to Figure 10- 4. If this single- price monopolist is producing at the profit- maximizing level of output, the total profit is represented by the area

Accepted Answer

The answer of Suppose a monopolist faces the demand curve...

Question 8

If a monopolist is practicing perfect price discrimination, then the following equation is true:

Accepted Answer

In perfect price discrimination, the monopolist charges each consumer their maximum willingness to pay, making marginal revenue (MR) equal to price (P) for all units sold.

Question 9

Which one of the following is a natural barrier to entry?

Accepted Answer

A negatively sloped LRAC curve over the whole range of output indicates economies of scale, which is a natural barrier to entry as it allows existing firms to produce at a lower average cost than new entrants.

Question 10

$\begin{array}{|l|l|}
\hline\text { Price } & \begin{array}{l}
\text { Quantity } \
\text { Demanded }
\end{array} \\hline \$ 8 & 5 \
\hline \$ 7 & 6 \
\hline \$ 6 & 7 \
\hline \$ 5 & 8 \
\hline \$ 4 & 9 \
\hline \$ 3 & 10 \
\hline \$ 2 & 11 \
\hline
\end{array}$
$\text { TABLE 10- } 1$
-Refer to Table 10- 1. For a single- price monopolist, the marginal revenue associated with increasing sales from 5 to 6 units is

Accepted Answer

To find the marginal revenue associated with increasing sales from 5 to 6 units, we need to look at the change in total revenue from selling the sixth unit. In this case, total revenue increases from $19 to $21, so the marginal revenue is $2.

Question 11

Suppose a monopolist faces the demand curve and cost curves shown below.  FIGURE 10- 4
-Refer to Figure 10- 4. A profit- maximizing single- price monopolist would charge the price

Accepted Answer

The answer of Suppose a monopolist faces the demand curve...

Question 12

Suppose that a single- price monopolist knows the following information: $$\begin{array} { | l | l | l | l | l | l | l | l | } 
\hline \text { Price } & \text { Quantity } & \text { TR } & \text { MR } & \text { Fixed Cost } & \text { TC } & \text { ATC } & \text { MC } \
\hline \$ 10.00 & 1500 & & \$ 7.00 & \$ 6000 & & \$ 5.00 & \$ 5.00 \
\hline
\end{array}$$
The monopolist could maximize profits by

Accepted Answer

The monopolist should lower the price and increase output because the marginal revenue ($7.00) is greater than the marginal cost ($5.00), indicating that producing more will increase profits.

Question 13

Suppose a monopolist faces the demand curve and cost curves shown below.  FIGURE 10- 4
-Refer to Figure 10- 4. If the monopolist is practicing perfect price discrimination and is maximizing its profits, the total revenue is represented by the area

Accepted Answer

Perfect price discrimination means that the monopolist charges each customer their maximum willingness to pay. Therefore, the monopolist captures all the consumer surplus in the market. In this case, the monopolist charges a different price for every unit sold, which is represented by the height of the demand curve at each quantity. The total revenue earned by the monopolist is the sum of the revenue from each unit sold, which is represented by the shaded area under the demand curve. This area is largest when the monopolist produces and sells the quantity where the demand curve intersects the marginal cost curve, which is Q2 in this case. The total revenue earned by the monopolist when it is practicing perfect price discrimination is represented by the area 0P5cQ2.

Question 14

Which of the following is probably NOT an example of price discrimination?

Accepted Answer

Price discrimination involves charging different prices to different consumers for the same product or service based on their willingness to pay. Charging more for strawberries in December than in June is likely due to seasonal supply and demand factors, not price discrimination.

Question 15

Suppose that a single- price monopolist calculates that at its present output, marginal revenue is $2 and marginal cost is $1. If the price of the product is $3, the monopolist could maximize its profits by

Accepted Answer

At present, the monopolist is not maximizing its profits, as its marginal revenue is greater than its marginal cost. This suggests that the monopolist could increase its profits by producing more output, as long as the additional revenue from selling that output exceeds the additional cost of producing it. Lowering the price would also increase the quantity demanded, which would lead to higher revenue. Therefore, the monopolist should lower the price and raise output to maximize its profits.

Question 16

The diagram below shows total revenue for a single- price monopolist.  FIGURE 10- 3
-Refer to Figure 10- 3. The firm's marginal revenue at Q1 is

Accepted Answer

At Q1, the marginal revenue curve intersects the x-axis, indicating that marginal revenue is positive. However, the marginal revenue curve slopes downward, indicating that marginal revenue is falling as more units are produced. Therefore, the answer is D (positive but falling).

Question 17

The diagram below shows total revenue for a single- price monopolist.  FIGURE 10- 3
-Refer to Figure 10- 3. The profit- maximizing output for the single- price monopolist is

Accepted Answer

The answer of The diagram below shows total revenue for...

Question 18

Consider a monopolist that is able to distinguish between two distinct market segments, A and B, for its product. Marginal cost is constant at $18 for each unit produced. The firm is currently selling its output at a single price and allocating its output across segments such that marginal revenue in segment A is $25 and marginal revenue in segment B is $15. Is this firm maximizing its profit?

Accepted Answer

The firm is currently not price discriminating and selling its output at a single price. However, since it is able to distinguish between two distinct market segments, it can increase its profits by price discriminating across the two market segments. Price discrimination would allow the firm to charge a higher price in segment A where marginal revenue is higher ($25) and a lower price in segment B where marginal revenue is lower ($15). This would increase the firm's profits compared to selling at a single price where it is currently leaving potential profits on the table. Thus, the firm is not currently maximizing its profit and can increase its profits by price discriminating.

Question 19

The cartelization of an industry with a homogeneous product usually means that

Accepted Answer

Cartelization involves member firms agreeing to reduce their joint output in order to drive up prices and increase profits. This is often done in industries with homogeneous products where competition is based solely on price. Therefore, choice B is the best answer. The other answer choices do not accurately describe the actions taken during cartelization.

Question 20

A monopolistic firm faces a downward- sloping demand curve because

Accepted Answer

A monopolistic firm faces a downward-sloping demand curve because the market price is affected by the amount sold by the firm. In other words, as the monopolistic firm increases its output, it has to lower the price to sell more units. This is in contrast to a perfectly competitive market, where each firm is a price taker and faces a horizontal demand curve.

Quiz 10: Monopoly, Cartels, and Price Discrimination

One similarity between a monopolist and a perfectly competitive firm is that both

At the profit- maximizing level of output for a single- price monopolist, price

One of the reasons cartels are considered unstable is that

A number of firms agreeing together to restrict output and thereby raise prices is known as

Suppose a monopolist faces the demand curve and cost curves shown below. FIGURE 10- 4 -Refer to Figure 10- 4. If this single- price monopolist is producing at the profit- maximizing level of output, the total profit is represented by the area

If a monopolist is practicing perfect price discrimination, then the following equation is true:

Which one of the following is a natural barrier to entry?

Suppose a monopolist faces the demand curve and cost curves shown below. FIGURE 10- 4 -Refer to Figure 10- 4. A profit- maximizing single- price monopolist would charge the price

Suppose a monopolist faces the demand curve and cost curves shown below. FIGURE 10- 4 -Refer to Figure 10- 4. If the monopolist is practicing perfect price discrimination and is maximizing its profits, the total revenue is represented by the area

Which of the following is probably NOT an example of price discrimination?

Suppose that a single- price monopolist calculates that at its present output, marginal revenue is $2 and marginal cost is $1. If the price of the product is $3, the monopolist could maximize its profits by

The diagram below shows total revenue for a single- price monopolist. FIGURE 10- 3 -Refer to Figure 10- 3. The firm's marginal revenue at Q1 is

The diagram below shows total revenue for a single- price monopolist. FIGURE 10- 3 -Refer to Figure 10- 3. The profit- maximizing output for the single- price monopolist is

The cartelization of an industry with a homogeneous product usually means that

A monopolistic firm faces a downward- sloping demand curve because