Question 1

Figure 15-11  In 2011, Verizon was granted permission to enter the market for cable TV in Upstate New York, ending the virtual monopoly that Time Warner Cable had in most local communities in the region. Figure 15-11 shows the cable television market in Upstate New York.
-Refer to Figure 15-11. What is the size of the deadweight loss prior to Verizon entering the market and what happens to this deadweight loss after Verizon does enter the market?
A) The deadweight loss of area D is converted to consumer surplus.
B) The deadweight loss of area C+D is converted to consumer surplus.
C) The deadweight loss of area D is converted to producer surplus.
D) The total deadweight loss is the area D+F; D is converted to consumer surplus and F to producer surplus.

Accepted Answer

The answer of Figure 15-11  In 2011, Verizon was...

Question 2

Figure 15-10 -Refer to Figure 15-10. Compared to a perfectly competitive market, consumer surplus is lower in a monopoly by an amount equal to the A) area FHE. B) area FGE. C) area P₁P₂EF. D) area P₁P₂GF.

Accepted Answer

Consumer surplus is the difference between the price consumers are willing to pay for a good and the price they actually pay. In a perfectly competitive market, the price of a good is determined by the interaction of supply and demand, and consumer surplus is maximized. In a monopoly, however, the single seller has the power to set the price of the good, and consumer surplus is lower than it would be in a perfectly competitive market. The area P1P2EF represents the difference between the price consumers are willing to pay for the good and the price they actually pay in a monopoly, and is therefore the amount by which consumer surplus is lower in a monopoly than in a perfectly competitive market.

Question 3

Figure 15-10 -Refer to Figure 15-10. What is the area that represents consumer surplus under a monopoly? A) the triangle P₀P₁F B) the triangle P₀P₂E C) the area P₁P₂EF D) the rectangle P₁P₃HF

Accepted Answer

In a monopoly, consumer surplus is represented by the area above the price level and below the demand curve, which is the triangle P₀P₁F.

Question 4

Assume a hypothetical case where an industry begins as perfect competition and then becomes a monopoly. As a result of this change
A) price will be higher, output will be lower, and the deadweight loss will be eliminated.
B) consumer surplus will be smaller, producer surplus will be greater, and there will be a reduction in economic efficiency.
C) price will be higher, consumer surplus will be greater, and output will be greater.
D) consumer surplus will be smaller and producer surplus will be greater. There will be a net increase in economic surplus.

Accepted Answer

When an industry transitions from perfect competition to monopoly, the firm gains market power and can raise prices above the competitive level. As a result, consumer surplus decreases as consumers are willing to pay less for the product than what the monopoly charges. On the other hand, the monopoly gains producer surplus by charging higher prices and producing less output. This reduction in output leads to a less efficient allocation of resources, resulting in a deadweight loss. Therefore, there will be a reduction in economic efficiency.

Question 5

Firms do not have market power in which of the following market structures?
A) perfect competition only
B) perfect competition and monopolistic competition
C) oligopoly
D) monopoly

Accepted Answer

Firms in perfect competition do not have market power as they are price takers, meaning they have no control over the market price and must accept the prevailing price. In monopolistic competition, firms have some degree of market power as they can differentiate their products and have control over their prices to some extent. In oligopoly and monopoly, firms have significant market power as there are few or no close substitutes for their products, allowing them to set higher prices and earn higher profits.

Question 6

Table 15-4
  Shakti Inc. has been granted a patent for its Arnica toothache balm. Table 15-4 shows the demand and the total cost schedule for the firm.
-Refer to Table 15-4. What is the amount of Shakti's profit?
A) $68
B) $72
C) $124
D) $192

Accepted Answer

The answer of Table 15-4
  Shakti Inc. has been...

Question 7

A market economy benefits from market power
A) if the majority of the population are entrepreneurs.
B) if firms with market power do research and development with the profits earned.
C) if market power gets so bad the government creates public enterprises.
D) under no circumstances.

Accepted Answer

Firms with market power who invest their profits into research and development can create innovations and advancements that benefit the economy as a whole. However, excessive market power can lead to negative consequences such as decreased competition and higher prices for consumers, potentially necessitating government intervention. Therefore, while market power can potentially have benefits in certain circumstances, it is important to regulate it to prevent abuses.

Question 8

Assume a hypothetical case where an industry begins as perfect competition and then becomes a monopoly. Which of the following statements comparing the conditions in the industry under both market structures is true?
A) A monopoly will produce more and charge a higher price than would a perfectly competitive industry producing the same good.
B) A monopoly will produce more and advertise more than would a perfectly competitive industry producing the same good.
C) A monopoly will produce less and charge a higher price than would a perfectly competitive industry producing the same good.
D) A monopoly will produce less and charge a lower price than would a perfectly competitive industry producing the same good.

Accepted Answer

In a perfectly competitive industry, there are many firms producing the same good or service, and each is a price taker, meaning they can't influence the market price. As a result, the firms in a perfect competition produce at the point where their marginal cost equals the market price, and this leads to a socially optimal level of output.

In contrast, a monopoly has complete control over the market because it is the sole producer in the industry. This means the monopolist can charge a higher price and produce less. The monopolist may also have less incentive to innovate or improve the product because there is no competition.

Therefore, choice C is correct - a monopoly will produce less and charge a higher price than would a perfectly competitive industry producing the same good.

Question 9

Table 15-4
  Shakti Inc. has been granted a patent for its Arnica toothache balm. Table 15-4 shows the demand and the total cost schedule for the firm.
-Refer to Table 15-4. What is the economically efficient output level?
A) 5 units
B) 6 units
C) 7 units
D) 8 units

Accepted Answer

The answer of Table 15-4
  Shakti Inc. has been...

Question 10

Table 15-4
  Shakti Inc. has been granted a patent for its Arnica toothache balm. Table 15-4 shows the demand and the total cost schedule for the firm.
-Refer to Table 15-4. What is Shakti's profit-maximizing output?
A) 4 units
B) 5 units
C) 6 units
D) 7 units

Accepted Answer

The profit-maximizing output for Shakti Inc. is where marginal revenue (MR) equals marginal cost (MC). At 4 units of output, MR is $16 (found by subtracting the total revenue of selling 4 units from the total revenue of selling 5 units) and MC is $16, which means that the firm will not have any additional profit by increasing or decreasing the output level. Therefore, the best choice for Shakti Inc. is to produce 4 units of Arnica toothache balm to maximize its profits.

Question 11

Which of the following statements is consistent with the views of Joseph Schumpeter?
A) Research and development by competitive firms is responsible for most technological changes.
B) An economy benefits from firms having market power because these firms are more likely to be able to commit funds for research and development.
C) Enforcement of antitrust laws is necessary to promote competition among firms.
D) A lack of competition discourages firms from developing new technologies.

Accepted Answer

Joseph Schumpeter believed that firms with market power are better able to invest in research and development, which leads to technological innovation and economic growth. He also argued that monopolies may emerge as a result of successful innovation by entrepreneurial firms, but they are ultimately temporary and will be displaced by new innovators. Therefore, Schumpeter's views were more favorable towards market power than towards competition.

Question 12

The size of a deadweight loss in a market is reduced by
A) government legislating a ceiling price.
B) government legislating a price floor.
C) market price being close to marginal cost.
D) creative destruction.

Accepted Answer

The size of a deadweight loss in a market is reduced when the market price is close to the marginal cost. This is because at this price point, the market is operating efficiently and there is no lost surplus due to underproduction or overproduction. Government intervention such as legislating a ceiling price (A) or a price floor (B) can actually increase deadweight loss by creating market inefficiencies. Creative destruction (D) may lead to changes in the market structure, but it does not directly address the issue of deadweight loss.

Question 13

Table 15-4
  Shakti Inc. has been granted a patent for its Arnica toothache balm. Table 15-4 shows the demand and the total cost schedule for the firm.
-Refer to Table 15-4. What is the amount of the deadweight loss generated by Shakti when it produces the monopoly output?
A) $124
B) $42
C) $36
D) $12

Accepted Answer

The answer of Table 15-4
  Shakti Inc. has been...

Question 14

Figure 15-10 -Refer to Figure 15-10. The deadweight loss due to a monopoly is represented by the area A) FHE. B) FGE. C) GEH. D) FQ₁Q₂E.

Accepted Answer

The deadweight loss due to a monopoly is represented by the area FGE. This is because the monopoly restricts output to Q₁, which is less than the competitive output of Q₂. This restriction creates a shortage of output, which drives up the price to P₁. The deadweight loss is the area of the triangle FGE, which represents the loss of consumer and producer surplus due to the monopoly.

Question 15

Figure 15-11 In 2011, Verizon was granted permission to enter the market for cable TV in Upstate New York, ending the virtual monopoly that Time Warner Cable had in most local communities in the region. Figure 15-11 shows the cable television market in Upstate New York. -Refer to Figure 15-11. Following the entry of Verizon, the subscription price falls from P_M to P_C. What is the increase in consumer surplus as a result of this change? A) the area A + B + C B) the area B + C C) the area D + F D) the area B + C + D

Accepted Answer

The answer of Figure 15-11  In 2011, Verizon was...

Question 16

Figure 15-10 -Refer to Figure 15-10. What is the area that represents producer surplus under a monopoly? A) the triangle 0P₂E B) the triangle 0P₃H C) the area 0P₁FH D) the rectangle P₁P₃HF

Accepted Answer

Producer surplus under a monopoly is represented by the area above the supply curve (or marginal cost curve) and below the price level set by the monopoly. In this case, it is the area 0P₁FH.

Question 17

Figure 15-11 In 2011, Verizon was granted permission to enter the market for cable TV in Upstate New York, ending the virtual monopoly that Time Warner Cable had in most local communities in the region. Figure 15-11 shows the cable television market in Upstate New York. -Refer to Figure 15-11. Suppose the local government imposes a $2.50 per month tax on cable companies. What happens to the price charged by the cable company following the imposition of this tax? A) The price rises from P_M to (P_M + $2.50). B) The price rises from P_M but it increases by an amount less than $2.50. C) The price rises from P_M but it increases by an amount greater than $2.50 to reflect the monopoly's markup. D) The price remains at P_M.

Accepted Answer

The answer of Figure 15-11  In 2011, Verizon was...

Question 18

The most profitable price for a monopolist is
A) the highest price a consumer is willing to pay for the monopolist's product.
B) the price at which demand is unit elastic.
C) a price that maximizes the quantity sold.
D) found where the profit-maximizing quantity hits the demand curve.

Accepted Answer

The most profitable price for a monopolist is found where the profit-maximizing quantity hits the demand curve. This occurs where the marginal revenue (MR) equals marginal cost (MC). Once the profit-maximizing quantity is determined, the monopolist can set the corresponding price based on the demand curve.

Question 19

Assume a hypothetical case where an industry begins as perfectly competitive and then becomes a monopoly. Which of the following statements regarding economic surplus in each market structure is true?
A) Under perfectly competitive conditions, economic surplus in this industry equals consumer surplus plus producer surplus. Under monopoly conditions, some consumer surplus is transferred to producer surplus, but economic surplus is the same as it was under perfectly competitive conditions.
B) Under perfectly competitive conditions, economic surplus in this industry is maximized. Under monopoly conditions, economic surplus is minimized.
C) Under perfectly competitive conditions, economic surplus is equal to consumer surplus; there is no producer surplus because firms are price takers. Under monopoly conditions, economic surplus is equal to producer surplus.
D) Under perfectly competitive conditions, economic surplus is maximized. Under monopoly conditions, economic surplus is less than under perfect competition and there is a deadweight loss.

Accepted Answer

In a perfectly competitive market, the economic surplus is maximized because the equilibrium price and quantity are determined by the intersection of the supply and demand curves, resulting in both consumer and producer surplus being maximized.

However, in a monopoly market, the monopolist has market power and can charge a higher price, resulting in a transfer of some consumer surplus to producer surplus. The economic surplus is less than under perfect competition, and there is a deadweight loss because the monopolist produces less than what would be produced under a competitive market, causing some mutually beneficial transactions to not occur. Therefore, option D is the correct answer.

Question 20

Market power refers to
A) the ability of consumers to dictate what products should be produced.
B) the ability of a firm to advertise its product and succeed in selling more output.
C) the ability of a firm to sell at a lower price than rival sellers.
D) the ability of a firm to charge a price higher than the marginal cost of production.

Accepted Answer

Market power refers to the ability of a firm to charge a price higher than the marginal cost of production. This means that the firm has some control over the market and can set higher prices than its competitors. This control can come from various sources, such as having a large market share, having exclusive access to a key resource or technology, or being protected by barriers to entry.

Quiz 15: Monopoly and Antitrust Policy

Figure 15-10 -Refer to Figure 15-10. Compared to a perfectly competitive market, consumer surplus is lower in a monopoly by an amount equal to the

Figure 15-10 -Refer to Figure 15-10. What is the area that represents consumer surplus under a monopoly?

Assume a hypothetical case where an industry begins as perfect competition and then becomes a monopoly. As a result of this change

Firms do not have market power in which of the following market structures?

Table 15-4 Shakti Inc. has been granted a patent for its Arnica toothache balm. Table 15-4 shows the demand and the total cost schedule for the firm. -Refer to Table 15-4. What is the amount of Shakti's profit?

A market economy benefits from market power

Assume a hypothetical case where an industry begins as perfect competition and then becomes a monopoly. Which of the following statements comparing the conditions in the industry under both market structures is true?

Table 15-4 Shakti Inc. has been granted a patent for its Arnica toothache balm. Table 15-4 shows the demand and the total cost schedule for the firm. -Refer to Table 15-4. What is the economically efficient output level?

Table 15-4 Shakti Inc. has been granted a patent for its Arnica toothache balm. Table 15-4 shows the demand and the total cost schedule for the firm. -Refer to Table 15-4. What is Shakti's profit-maximizing output?

Which of the following statements is consistent with the views of Joseph Schumpeter?

The size of a deadweight loss in a market is reduced by

Table 15-4 Shakti Inc. has been granted a patent for its Arnica toothache balm. Table 15-4 shows the demand and the total cost schedule for the firm. -Refer to Table 15-4. What is the amount of the deadweight loss generated by Shakti when it produces the monopoly output?

Figure 15-10 -Refer to Figure 15-10. The deadweight loss due to a monopoly is represented by the area

Figure 15-10 -Refer to Figure 15-10. What is the area that represents producer surplus under a monopoly?

The most profitable price for a monopolist is

Assume a hypothetical case where an industry begins as perfectly competitive and then becomes a monopoly. Which of the following statements regarding economic surplus in each market structure is true?

Market power refers to