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. 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 2

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

Accepted Answer

Monopolists do not have independent supply curves because their output decisions depend on the market demand curve. They choose the quantity where marginal cost equals marginal revenue, which is directly influenced by the demand curve.

Question 3

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

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

Question 4

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

Accepted Answer

A monopolist can incur losses if the average total cost of production is higher than the price that consumers are willing to pay for the product, leading to losses despite being the sole producer.

Question 5

Refer to the information provided in Table 13.4 below to answer the question(s) that follow.
Table 13.4
 $$\begin{array} { | c | c | } 
\hline \text { Price (\$) } & \text { Quantity } \
\hline 20.00 & 1 \
\hline 18.00 & 2 \
\hline 16.00 & 3 \
\hline 14.00 & 4 \
\hline 12.00 & 5 \
\hline 10.00 & 6 \
\hline 8.00 & 7 \
\hline
\end{array}$$
-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 6

Refer to the information provided in Table 13.4 below to answer the question(s) that follow.
Table 13.4
 $$\begin{array} { | c | c | } 
\hline \text { Price (\$) } & \text { Quantity } \
\hline 20.00 & 1 \
\hline 18.00 & 2 \
\hline 16.00 & 3 \
\hline 14.00 & 4 \
\hline 12.00 & 5 \
\hline 10.00 & 6 \
\hline 8.00 & 7 \
\hline
\end{array}$$
-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 monopoly maximizes profit where marginal revenue equals marginal cost. The marginal cost is constant at $4. The price of $12 for 5 units is the highest price where the marginal revenue is greater than or equal to the marginal cost of $4.

Question 7

Refer to the information provided in Table 13.4 below to answer the question(s) that follow.
Table 13.4
 $$\begin{array} { | c | c | } 
\hline \text { Price (\$) } & \text { Quantity } \
\hline 20.00 & 1 \
\hline 18.00 & 2 \
\hline 16.00 & 3 \
\hline 14.00 & 4 \
\hline 12.00 & 5 \
\hline 10.00 & 6 \
\hline 8.00 & 7 \
\hline
\end{array}$$
-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 8

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

Accepted Answer

In perfect competition, firms are price takers, so the price set by the market is equal to the marginal revenue for each additional unit sold. In a monopoly, the firm has market power and can set prices above marginal cost, leading to a situation where price is greater than marginal revenue because the firm must lower the price on all units sold to sell an additional unit, thus reducing marginal revenue.

Question 9

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 correct answer is B. The most Fun Cable Company would bid for the franchise is $62,500. This is because the profit-maximizing quantity is Q=2,500 and the profit-maximizing price is P=$30. The total revenue is TR=P*Q=$75,000 and the total cost is TC=5*Q=$12,500. Therefore, the profit is $62,500.

Question 10

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

Accepted Answer

In a monopoly, the firm is the sole supplier of the good or service and makes decisions about output and price based on its total cost and demand for its product, rather than taking the market price as given. Therefore, a traditional supply curve, which shows the quantity of goods that a producer is willing to supply at each price level, does not exist for a monopoly in the same way it does for firms in perfect competition, where many firms respond to market prices.

Question 11

Related to the Economics in Practice on page 267: 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 is the strategy where firms set the price of their new product based on the prices of similar products in the market. This approach helps them to remain competitive and ensure that their product is attractively priced to potential customers.

Question 12

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 13

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

In the long run, if a monopoly continues to incur losses and market conditions remain unchanged, it should exit the industry to avoid further financial losses.

Question 14

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

Accepted Answer

A monopolist maximizes profit by producing the quantity of output at which marginal revenue (MR) equals marginal cost (MC), as this is the point where the additional revenue from selling one more unit equals the additional cost of producing that unit.

Question 15

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

Accepted Answer

While both competitive firms and monopolies set output where marginal revenue equals marginal cost, monopolies can still be inefficient because they restrict output to raise prices above marginal costs, leading to a deadweight loss in the market.

Question 16

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

The monopolist sets the price above marginal cost because the marginal revenue curve, which guides its output decisions, lies below the demand curve due to the downward sloping demand. This results in a price that is higher than marginal cost at the profit-maximizing quantity.

Question 17

Related to the Economics in Practice on page 274: According to the Economics in Practice, relative to a longer life cycle, a shorter life cycle for a product
A) increases the benefit of strong intellectual property protection.
B) reduces the benefit of strong intellectual property protection.
C) does not change the benefit of strong intellectual property protection.
D) There is no conclusive evidence of a relationship between a product's life cycle and intellectual property protection.

Accepted Answer

A shorter life cycle reduces the benefit of strong intellectual property protection because the product becomes obsolete or replaced more quickly, diminishing the time during which protection is beneficial.

Question 18

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

A monopoly does not have a supply curve because it is a price maker, not a price taker, and its output decision depends on the demand curve and marginal revenue, not just marginal cost.

Question 19

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

Fun Cable Company would earn a profit of $62,500 by setting Q=2,500 and charging a price of $30 per month.

Question 20

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 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 gives Q = 2500. Substituting Q back into the demand equation to find P: P = 55 - 0.01(2500) = $30.

Quiz 13: Monopoly and Antitrust Policy