Question 1

Figure 10-11
  
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 10-11 shows the cable television market in Upstate New York.
-Refer to Figure 10-11.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?

Accepted Answer

The answer of Figure 10-11
  
In 2011, Verizon was...

Question 2

The most profitable price for a monopolist is

Accepted Answer

Monopolists should aim to produce at the quantity at which their marginal revenue equals their marginal cost in order to maximize their profits. This means that the monopolist will set the price at a level that allows him to sell the quantity for which the marginal revenue generated is equal to the marginal cost incurred. This quantity of profit maximization will also ensure that the price is not too high, which would lead the consumer to quit using the product, while also bringing in sufficient revenue for the monopolist to compensate for the fixed costs. This indicates that the monopolist's most profitable price will be the one for which marginal revenue equals marginal cost, which is answer D.

Question 3

Table 10-4
 $$\begin{array} { | c | c | c | } 
\hline \begin{array} { c } 
\text { Price per } \
\text { Dose }
\end{array} & \begin{array} { c } 
\text { Quantity } \
\text { Demanded } \
\text { (dose) }
\end{array} & \begin{array} { c } 
\text { Total Cost of } \
\text { Production } \
\text { (dollars) }
\end{array} \
\hline \$ 80 & 0 & \$ 80 \
\hline 72 & 1 & 82 \
\hline 64 & 2 & 88 \
\hline 56 & 3 & 100 \
\hline 48 & 4 & 124 \
\hline 40 & 5 & 164 \
\hline 32 & 6 & 208 \
\hline 24 & 7 & 268 \
\hline 16 & 8 & 340 \
\hline
\end{array}$$ 
Shakti Inc.has been granted a patent for its Arnica toothache balm. Table 10-4 shows the demand and the total cost schedule for the firm.
-Refer to Table 10-4.What is the amount of the deadweight loss generated by Shakti when it produces the monopoly output?

Accepted Answer

The answer of Table 10-4
 \[\begin{array} { | c |...

Question 4

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

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 monopoly, the price is set above the marginal cost, so consumers are willing to pay more for the good than the monopoly charges. The area that represents consumer surplus is the triangle P₀P₁F, which is the difference between the price consumers are willing to pay (P₀) and the price they actually pay (P₁).

Question 5

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

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 6

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

Accepted Answer

When an industry changes from perfectly competitive to a monopoly, the monopolist gains market power and is able to set a higher price than the competitive industry. This leads to a reduction in consumer surplus because consumers have to pay a higher price. At the same time, the monopolist is able to produce less output than the competitive industry would have produced, leading to a reduction in economic efficiency. Producer surplus increases because the monopolist has more market power and is able to capture more profits, but overall economic surplus decreases due to the reduction in consumer surplus and efficiency. Therefore, B is the best choice.

Question 7

Table 10-4
 $$\begin{array} { | c | c | c | } 
\hline \begin{array} { c } 
\text { Price per } \
\text { Dose }
\end{array} & \begin{array} { c } 
\text { Quantity } \
\text { Demanded } \
\text { (dose) }
\end{array} & \begin{array} { c } 
\text { Total Cost of } \
\text { Production } \
\text { (dollars) }
\end{array} \
\hline \$ 80 & 0 & \$ 80 \
\hline 72 & 1 & 82 \
\hline 64 & 2 & 88 \
\hline 56 & 3 & 100 \
\hline 48 & 4 & 124 \
\hline 40 & 5 & 164 \
\hline 32 & 6 & 208 \
\hline 24 & 7 & 268 \
\hline 16 & 8 & 340 \
\hline
\end{array}$$ 
Shakti Inc.has been granted a patent for its Arnica toothache balm. Table 10-4 shows the demand and the total cost schedule for the firm.
-Refer to Table 10-4.What is the amount of Shakti's profit?

Accepted Answer

The answer of Table 10-4
 \[\begin{array} { | c |...

Question 8

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

Accepted Answer

When the market price is close to marginal cost, it indicates that resources are being used efficiently and there is minimal deadweight loss. This is because the quantity supplied meets the quantity demanded without any surplus or shortage, leading to a socially optimal outcome. A and B would actually increase deadweight loss by creating price distortions and reducing economic efficiency. D does not directly affect deadweight loss.

Question 9

Table 10-4
 $$\begin{array} { | c | c | c | } 
\hline \begin{array} { c } 
\text { Price per } \
\text { Dose }
\end{array} & \begin{array} { c } 
\text { Quantity } \
\text { Demanded } \
\text { (dose) }
\end{array} & \begin{array} { c } 
\text { Total Cost of } \
\text { Production } \
\text { (dollars) }
\end{array} \
\hline \$ 80 & 0 & \$ 80 \
\hline 72 & 1 & 82 \
\hline 64 & 2 & 88 \
\hline 56 & 3 & 100 \
\hline 48 & 4 & 124 \
\hline 40 & 5 & 164 \
\hline 32 & 6 & 208 \
\hline 24 & 7 & 268 \
\hline 16 & 8 & 340 \
\hline
\end{array}$$ 
Shakti Inc.has been granted a patent for its Arnica toothache balm. Table 10-4 shows the demand and the total cost schedule for the firm.
-Refer to Table 10-4.What is the economically efficient output level?

Accepted Answer

The answer of Table 10-4
 \[\begin{array} { | c |...

Question 10

Market power refers to

Accepted Answer

Market power refers to the ability of a firm to charge a price higher than the marginal cost of production. This is because, in a competitive market, firms cannot charge a price higher than the marginal cost of production as customers will switch to other suppliers who offer a lower price. Firms with market power can charge a higher price as they face limited competition.

Question 11

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

Accepted Answer

The answer of Figure 10-10
 
-Refer to Figure 10-10.The deadweight...

Question 12

A market economy benefits from market power

Accepted Answer

If firms with market power use their profits to invest in research and development, they can lead to innovation and technological advancements in the market economy. This can lead to increased competition and benefits for consumers. However, if market power becomes too extreme, it can lead to negative consequences such as lack of competition, higher prices for consumers, and the need for government intervention. Therefore, market power needs to be balanced and regulated to ensure a fair and efficient market economy.

Question 13

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?

Accepted Answer

Under perfect competition, economic surplus is maximized because there is no deadweight loss. Both consumer surplus and producer surplus are maximized as firms are price-takers. However, under monopoly conditions, economic surplus is less than that of perfect competition, and there is a deadweight loss due to the power of the monopolist to restrict output and charge a higher price. While some consumer surplus is transferred to producer surplus under monopoly, this does not make up for the loss of economic surplus.

Question 14

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

Accepted Answer

The answer of Figure 10-10
 
-Refer to Figure 10-10.Compared to...

Question 15

Figure 10-11
  
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 10-11 shows the cable television market in Upstate New York.
-Refer to Figure 10-11.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?

Accepted Answer

The answer of Figure 10-11
  
In 2011, Verizon was...

Question 16

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

Accepted Answer

In perfect competition, there are numerous small firms that are price takers and have no market power as they cannot influence the market price. Monopolistic competition, oligopoly, and monopoly are market structures where firms have varying degrees of market power due to factors such as product differentiation, barriers to entry, and control over prices.

Question 17

Figure 10-11
  
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 10-11 shows the cable television market in Upstate New York.
-Refer to Figure 10-11.Following the entry of Verizon,the subscription price falls from PM to PC.What is the increase in consumer surplus as a result of this change?

Accepted Answer

The increase in consumer surplus is represented by the area of the triangle formed by points B, C and D. Therefore, the best choice is option D, which includes this entire area. Option A includes the deadweight loss (area A) which represents the loss in efficiency due to monopolistic pricing, and option B only includes consumer surplus after the entry of Verizon (areas B and C). Option C includes producer surplus (area F) and does not represent the increase in consumer surplus.

Question 18

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

Accepted Answer

The answer of Figure 10-10
 
-Refer to Figure 10-10.What is...

Question 19

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

Accepted Answer

In a perfectly competitive industry, there are many firms producing the same good, which creates a situation where no individual firm has any market power. Therefore, each firm is a price taker and cannot charge a price higher than the market price. This leads to an equilibrium where the market price is equal to the marginal cost of production, and each firm produces at a level where marginal cost equals price. On the other hand, a monopolist is the sole supplier of a good, and has complete market power. It can charge a price that is higher than the marginal cost of production, and this leads to a situation where the monopolist produces less and charges a higher price than would a perfectly competitive industry producing the same good. Therefore, option C is correct.

Question 20

Table 10-4
 $$\begin{array} { | c | c | c | } 
\hline \begin{array} { c } 
\text { Price per } \
\text { Dose }
\end{array} & \begin{array} { c } 
\text { Quantity } \
\text { Demanded } \
\text { (dose) }
\end{array} & \begin{array} { c } 
\text { Total Cost of } \
\text { Production } \
\text { (dollars) }
\end{array} \
\hline \$ 80 & 0 & \$ 80 \
\hline 72 & 1 & 82 \
\hline 64 & 2 & 88 \
\hline 56 & 3 & 100 \
\hline 48 & 4 & 124 \
\hline 40 & 5 & 164 \
\hline 32 & 6 & 208 \
\hline 24 & 7 & 268 \
\hline 16 & 8 & 340 \
\hline
\end{array}$$ 
Shakti Inc.has been granted a patent for its Arnica toothache balm. Table 10-4 shows the demand and the total cost schedule for the firm.
-Refer to Table 10-4.What is Shakti's profit-maximizing output?

Accepted Answer

The answer of Table 10-4
 \[\begin{array} { | c |...

Quiz 10: Monopoly and Antitrust Policy

The most profitable price for a monopolist is

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

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

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

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

Market power refers to

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

A market economy benefits from market power

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?

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

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

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

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