Quiz 10: Monopoly and Price Discrimination

Which type of barrier to entry allows the electric company to maintain a monopoly over the production of electricity? A)a patent B)economies of scale C)diseconomies of scale D)ownership of a scarce factor of production

Barriers to entry are used to: A)enable a firm to exercise control over the price of its product. B)prevent other firms from entering the market. C)allow the firm to earn economic profits. D)all of the above

Which of the following is a barrier to entry for a monopoly? A)government licensing B)patents C)network externalities D)all of the above

In a monopoly,the market demand curve is: A)the same as the demand curve facing the firm. B)the summation of all the individual firm's demand curves. C)nonexistent. D)the marginal cost curve above minimum average variable cost.

For a non-price discriminating monopolist to sell more units of output: A)the price must be increased. B)the price must be reduced. C)demand must become more elastic. D)the other competing firms must sell fewer units.

The tradeoffs faced by a monopolist in cutting price to sell a larger quantity leads to marginal revenue being: A)less than price. B)greater than price. C)equal to price. D)none of the above.

Assume that Pura Water,a local monopoly water utility company,is currently selling 10,000 gallons per hour at a price of $0.10 per gallon.If Pura Water wants to sell 1000 gallons more,it will have to lower the price to $0.09 per gallon.The marginal revenue of the 10,001 is approximately: A)-$99.91. B)$99.91. C)$9.91. D)-$999.91.

Assume a non-price discriminating monopolist can sell 20 units of a good for 4.00 each and can sell 21 units of that good for $ 3.85 each.The marginal revenue of the 21st unit is: A)$85. B)$ -85. C)$ .85. D)$ -.85.

Assume a non-price discriminating monopolist can sell 45 units of a good for $ 1.50 each and can sell 46 units of that good for $ 1.45 each.The marginal revenue of the 46th unit is: A)-$ .08 B)$ .08. C)$ .80. D)-$ .80

A monopolist can: A)sell as much as he wants at the chosen price since he is the only seller. B)increase price only if he is willing to reduce output sold. C)increase the price of his output and still sell the same quantity. D)increase the price of his output and the quantity sold at the same time.

To maximize profit,the monopolist produces on the ________ portion of the demand curve where ________. A)elastic;price equals marginal cost B)elastic;marginal revenue equals marginal cost C)inelastic;price equals marginal revenue D)inelastic;marginal revenue equals marginal cost

Strawberry Inc.has a monopoly on the sale of a specialized smartphone.If it sells 9 of these smartphones its total revenue is $1,800,and if it sells 10 smartphones its total revenue is $1,950.The marginal revenue of the tenth smartphone sold is: A)$150. B)$75. C)$1,950. D)$1,800.

A local cable company has a monopoly on cable service.If it sells 20 of the services its total revenue is $10,000 and if it sells 21 services its total revenue is $10,600.The marginal revenue of the 21st service sold is: A)$800. B)$13. C)$850. D)$600.

A local cable company has a monopoly on cable service.If it sells 20 of the services its total revenue is $10000,and if it sells 21 services its total revenue is $10,600.When the local cable company sells 21 programs,the price per service is closest to: A)$600. B)$500. C)$505. D)$50

-Refer to Figure 10.1.The marginal revenue of the fifth pound of cheese is: A)$2. B)$1. C)$5. D)$25.

-Refer to Figure 10.1.The marginal revenue of the sixth pound of cheese is: A)-$4. B)-$1. C)$1. D)$4.

-Refer to Figure 10.2.The marginal revenue of the eighth pound of burritos is: A)$5. B)$3. C)$6. D)$24.

-Refer to Figure 10.2.The marginal revenue of the 10th pound of burritos is: A)-$4. B)-$1. C)$1. D)$4.

For a profit maximizing monopolist,price: A)equals marginal revenue. B)is less than marginal revenue. C)is greater than marginal revenue. D)can be greater than or less than marginal revenue.

The Rare Bird Company has a monopoly in the sale of macaws in Iowa.When the Rare Bird Company sells three macaws its marginal revenue is $30.When the Rare Bird Company sells four macaws its marginal revenue will be: A)less than $30. B)greater than $30. C)equal to $30. D)greater than $30 if demand is elastic and less than $30 if demand is inelastic.

For a monopolist,if total revenue increases as output decreases,then marginal revenue is: A)equal to price. B)zero. C)positive. D)negative.

Suppose we know that a monopolist is maximizing its profits.Which of the following must be true? The monopolist has: A)maximized its total revenue. B)set price equal to its average cost. C)maximized the difference between marginal revenue and marginal cost. D)equated marginal revenue and marginal cost.

-Refer to Figure 10.3.The profit-maximizing level of output for this monopolist is ________ units of output. A)20 B)22 C)24 D)26

-Refer to Figure 10.3.The profit-maximizing price for this firm is: A)$5. B)$7. C)$9. D)$11.

-Refer to Figure 10.3.If this firm is producing the profit-maximizing quantity and selling it at the profit-maximizing price,the firm's profit will be: A)$80. B)$84. C)$88. D)$132.

-Refer to Figure 10.3.In the long run this monopoly firm's profit will: A)fall. B)rise. C)remain unchanged. D)become normal.

A Colombian emerald mine has a monopoly over the production of emeralds in Colombia.The mine will find it profitable to increase the mining production of emeralds as long as marginal cost: A)is less than marginal revenue. B)equals marginal revenue. C)is greater than marginal revenue. D)is positive.

A profit-maximizing monopolist will produce an output level at which: A)marginal revenue is zero. B)marginal cost is minimized. C)price equals marginal cost. D)marginal revenue equals marginal cost.

Tower Communications Inc.has a monopoly over local cellphone service.If Tower Communications Inc.is producing where marginal revenue is greater than marginal cost,the firm: A)could increase profits by reducing output. B)could increase profits by increasing output. C)is maximizing profits. D)must be earning a zero profit.

-Refer to Figure 10.4.The Exclusive Gift Company has a monopoly over the sale of gold hula hoops.This company is currently selling 50 gold hula hoops at a price of $5,000.You are hired as an economic consultant to this company.You should advise this monopolist to: A)shut down in the short run and exit the industry in the long run. B)produce in the short run and expand capacity in the long run. C)produce in the short run but exit the industry in the long run if conditions do not change. D)shut down in the short run but expand capacity in the long run if conditions do not change.

-Refer to Figure 10.5.The profit-maximizing level of output for the Memory Company is ________ high school yearbooks. A)0 B)200 C)300 D)350

-Refer to Figure 10.5.The profit-maximizing price for the Memory Company's high school yearbook is: A)$0. B)$9. C)$16. D)$20.

-Refer to Figure 10.5.The profit-maximizing level of profit for the Memory Company is: A)-$1,800. B)-$1,200. C)-$800. D)$0.

-Refer to Figure 10.6.The profit-maximizing (or loss-minimizing)level of output: A)is 10,000. B)is 0. C)is approximately 15,000. D)is approximately 25,000.

-Refer to Figure 10.6.The profit-maximizing price: A)is $2. B)is $4. C)is $5. D)is approximately $4.50.

-Refer to Figure 10.6.At the profit-maximizing level of output,total revenue: A)is $10,000. B)is $20,000. C)is $40,000. D)is $50,000.

-Refer to Figure 10.6.At the profit-maximizing level of output,total cost: A)is $10,000. B)is $20,000. C)is $30,000. D)is $50,000.

-Refer to Figure 10.6.At the profit-maximizing level of output,the firm has a: A)profit of $10,000. B)profit of $20,000. C)loss of $10,000. D)break-even position.

Which one of the following is good example of a natural monopoly? A)electricity B)cable TV service C)water systems D)all of the above

According to the Application about setting the price of tickets for Major League Baseball games,due to the marginal revenue from ticket sales for a typical Major League Baseball team,the team could increase total revenue from ticket sales by: A)increasing the price of tickets and increasing the quantity of tickets sold. B)decreasing the price of tickets and increasing the quantity of tickets sold. C)increasing the price of tickets and decreasing the quantity of tickets sold. D)decreasing the price of tickets and decreasing the quantity of tickets sold.

A monopoly is a market that consists of one buyer and many sellers.

An unnatural monopoly occurs when the scale economies in production are so large that only a single firm can earn profit.

For a monopolist,price is equal to marginal revenue.

A monopoly firm cannot affect the price therefore it is a price taker.

In order for a monopoly to maximize its profit,the monopoly will produce the quantity at which marginal revenue is less than marginal cost.

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.

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

Explain three different types of barriers to entry in monopoly.

What is a government franchise? Give an example.

Comment on the following statement: "For a nondiscriminating monopolist,marginal revenue is always equal to price."

Table 10.1 -Table 10.1 represents the demand for Widgets,Inc. ,which has a monopoly in the sale of widgets.Calculate total revenue and marginal revenue for the levels of output given.

Table 10.2 -ABC,Incorporated has a local monopoly in the sale of automatic paper towel dispensers.Table 10.2 shows the demand for these towel dispensers at various prices.The total cost of production of the various levels of output is also shown.Calculate total revenue and profit for the firm.What level of output maximizes profit? What price should the firm charge?

A monopolist is a price maker,but is not entirely free to set the price of its product.Explain.

-Figure 10.7 shows the demand and cost conditions for a monopolist.What is the firm's maximum profit?

For a competitive firm,marginal revenue is ________ price,whereas for a monopolist marginal revenue is ________ price. A)equal to;greater than B)equal to;less than C)less than;equal to D)greater than;equal to

For a competitive firm,the level of output that maximizes profits is where marginal revenue ________ marginal cost,and for a monopolist it is where marginal revenue ________ marginal cost. A)is equal to;is greater than B)is equal to;is less than C)is equal to;is equal to D)is greater than;is equal to

At the profit-maximizing level of output,price is ________ marginal cost for a perfectly competitive firm and price is ________ marginal cost for a monopolist. A)equal to;greater than B)equal to;less than C)equal to;equal to D)greater than;equal to

When comparing a monopoly to a perfectly competitive industry at the equilibrium point,we find that monopoly is: A)inefficient because it charges higher prices. B)inefficient because it generates less output. C)efficient because it generate more output due to economies of scale. D)is neither efficient nor inefficient.

Which of the following is true for both a monopolist and a perfectly competitive firm when each is maximizing profit? A)Price equals marginal costs. B)Marginal revenue is less than price. C)Marginal revenue is equal to marginal cost. D)all of the above

-Refer to Figure 10.8.If the paper books industry is competitive,the market price will be ________ and the market output will be ________ units. A)$25;600 B)$10;400 C)$20;800 D)$15;600

-Refer to Figure 10.8.If the paper books industry becomes monopolized,the profit-maximizing price will be ________ and the profit-maximizing quantity will be ________ units. A)$25;600 B)$23;400 C)$20;800 D)$10;400

Relative to a perfectly competitive market,a monopoly produces: A)more output,charges higher prices,and earns economic profits. B)more output,charges higher prices,and earns economic losses. C)less output,charges higher prices,and earns only a normal profit. D)less output,charges higher prices,and earns economic profits.

-Refer to Figure 10.9.The profit-maximizing level of output for the monopolist is: A)500. B)600. C)800. D)1200.

-Refer to Figure 10.9.The deadweight loss of monopoly is: A)ACF. B)FGBC. C)BEC. D)FABE.

Which of the following is a result of the monopolization of a perfectly competitive industry,ceteris paribus? A)lower prices B)greater efficiency C)reduced profits D)deadweight loss

Deadweight loss from monopoly is: A)the net decrease in the market surplus. B)the producer surplus loss only. C)the process of using public policy to reduce losses. D)the decrease in productivity.

From society's point of view,a monopolist produces too little because price: A)is less than marginal cost. B)is less than average cost. C)exceeds average cost. D)exceeds marginal cost.

When the firm is producing at the monopoly equilibrium,its producer surplus will be ________ and the consumer surplus will be ________ than if the industry was competitive. A)higher;lower B)higher;higher C)lower;lower D)lower;higher

The process of using public policy to gain economic profit is: A)deadweight loss. B)never successful. C)rent seeking. D)illegal.

Recall the application of a casino monopoly in Creswell,Oregon,the developers interested in building the casino offered $2 million per year to the citizens.This is another example of: A)a deadweight loss. B)rent seeking. C)high-cost industry. D)trade-offs.

Additional Application Monopolies are not always easily ended.The European Commission's directorate for the internal market is attempting to end Germany's chimney sweeps' monopoly.For many decades the chimney sweeps in Germany have held a "near-perfect monopoly." While the profession is a private enterprise the local governments set the prices,control the number of sweeps in each district,require that households are inspected,and will not allow consumers to choose a different sweep even if they do not like the one they have.Due to the required annual inspections,sweeps always have jobs and any new entrants into the market will wait years before they are given a district to operate in.One argument in favor of this monopolistic arrangement is based on public safety.If new sweeps are not allowed to enter the industry then quality regulation is more easily insured.If the current sweeps continue to earn profits,none will leave the industry either.While the European Commission wants a more competitive market,they realize that it will not develop soon. "Chimney Sweeps Under Fire," The Economist,October 21,2006,p.76. -How is the chimney sweep monopoly maintained? A)The government does not allow easy entry for competitors. B)Chimney sweeps hold closed meetings that exclude all competitors. C)The level of technology is too sophisticated for most new entrants to comprehend. D)The consumers want it to remain noncompetitive.

If the chimney sweep market became more competitive,one market change that would be expected is: A)lower output. B)higher costs. C)higher profits. D)lower prices.

Insuring a safe and consistent quality of chimney sweeps while losing the benefits of competition in this industry is an example of ________ resulting from monopolies. A)a quagmire B)a tradeoff C)an externality D)experimentation

Compared to a monopoly market,a perfectly competitive market will produce more output at a higher price.

The deadweight loss from monopoly is a measure of efficiency from monopoly.

Rent seeking will lower the social cost of monopoly.

Another source of inefficiency from a monopoly is the use of resources to acquire monopoly power.

The government is not able to regulate the price that a monopolist charges because the price is set by the market.

The government does have the legal authority to break up monopolies into smaller companies.

If we switch from a perfectly competitive market to a monopoly,consumers will be better off.

How does the demand curve facing a monopoly firm compare with the demand curve facing a perfectly competitive firm?

-Figure 10.7 shows the demand and cost conditions for a monopolist.How large is the deadweight loss due to monopoly?

Assume that local bread industry is perfectly competitive and faces constant returns to scale.Draw a graph showing the output of bread ( and the price of bread ( )in a competitive market.Suppose that a monopolist buys all of the independent bread companies in the local area.What will happen to the output of bread? Show this on your graph.(Label it . )What will happen to the price of bread? Show this on your graph.(Label it . )

Suppose the widget industry is perfectly competitive and faces constant returns to scale.A monopoly purchases all widget producers in the market.List three ways in which the market outcome under monopoly will differ from the market outcome under perfect competition.

Explain what economists mean when they refer to rent-seeking behavior.

How does rent-seeking behavior result in additional deadweight loss?

Assume that Lorex is the only pharmaceutical company that has a patent in producing Lipitor for cholesterol.Lorex can make a profit by selling Lipitor: A)in the short run but not in the long run because new firms will enter the industry in the long run. B)only in the long run because government regulations prevent monopolists from earning profits in the short run. C)in the long run but not the short run because the monopolist will face competition in the short run. D)in the long run because entry into the industry by new firms is blocked until the patent expires.

If a government grants monopoly power through a patent,it may beneficial from a social perspective because: A)it may insure less consumer products. B)it may encourage the development of new products. C)it may encourage higher standards of professional ethics. D)it may keep down monopoly profits.

Which of the following market changes would be expected to occur when a patent expires? A)an increase in the market price B)an increase in generic products C)a decrease in industry output D)all of the above

Patents are barriers to entry created by: A)contractual agreement. B)consumer associations. C)industry associations. D)governments.

A product's patent lasts for ________ years. A)7 B)17 C)20 D)27

Recall the application about drug companies behaving illegally to protect their patented drugs.Why would a company owning a drug patent that is about to expire pay a competitor $60 million to NOT produce a comparable drug? A)They claim their patented drug is a superior product. B)They want to avoid losing profits. C)They want consumers to have some alternatives. D)No company would ever spend money in that manner.

Patents encourage innovation.

One barrier to entry is a patent granted by consumer associations.

Patent protection is always efficient from society's perspective.

The benefits of patents encourage firms to undertake expensive research and development.

It is possible for society to gain by rewarding 20-year patents to companies.

When patents expire,new firms enter the market and prices fall.

From an economic standpoint,patents reduce efficiency because they serve as a barrier to entry and thus limit market competition.Are there any positive economic benefits of patents? Explain.

Price discrimination is best described as a situation where a firm: A)charges buyers an excessive price for its product. B)charges different prices to different groups of buyers. C)sells the same product for different prices from one year to another. D)acts as a price taker.

A firm has the opportunity for price discrimination when: A)the firm has market power. B)the firm is subject to price controls. C)the firm is able to promote the resale of the good or service. D)All of the above are correct.

If a restaurant charges seniors one price and nonseniors another price,the restaurant will apply the marginal principle: A)twice,because the two groups have different demands. B)once,because the two groups have the same demands. C)only to the seniors because they consume the most. D)by averaging the price charged to both groups.

A firm can effectively practice price discrimination and increase profit if: A)the marginal cost of production in each market is different. B)the average cost of production in each market is different. C)the price elasticity of demand in each market is different. D)the product can be produced in two different factories.

Which of the following is an example of price discrimination? A)Firm A sells its output for less than Firm B. B)Firm C doubles the price of its output given a large increase in market demand. C)Firm D is the only seller of a product. D)Firm E gives senior citizens a 10% discount.

Which of the following is TRUE about price discrimination? A)It can only be used by monopolistic firms. B)It is only possible if the good cannot be resold. C)It maximizes consumer welfare since each consumer pays only what he is willing to pay. D)All of the above are true.

A firm has an opportunity of price discrimination if following is met: A)requires that the firm has some control over the price of its product. B)the firm must have different consumer groups. C)the firm's products are not easily resold. D)All of the above are correct.

Which of the following is NOT an example of price discrimination? A)A restaurant offers senior citizens a discount. B)A supermarket offers coupons to its customers. C)An electric company charges different rates to its business and residential customers. D)An electronics superstore charges a lower price than a small retailer for the same television set.

Which of the following is NOT an example of price discrimination? A)An individual finds his favorite brand of cookies on sale at the local grocery store. B)A computer manufacturer offers a mail-in rebate for its product. C)A local movie theater offers college students a discount on the price of admission. D)An airline passenger who is staying on his trip over a Saturday night will pay a lower fare than a passenger traveling only during the workweek.

Booksellers are able to charge ________ prices to consumers who buy hardback books because their demand for the book is more ________ than consumers who wait until the paperback comes out. A)lower;inelastic B)lower;elastic C)higher;elastic D)higher;inelastic

On any given day,Disney World can price discriminate and charge local visitors a ________ price for a ticket than out of state visitors because local visitors have a more ________ demand. A)lower;inelastic B)lower;elastic C)higher;inelastic D)higher;elastic

Suppose that a local gym can divide its customers into two groups with different price elasticities of demand.Which of the following is true? A)If a local gym.uses price discrimination,it will charge the lower price to the group with the most price elastic demand. B)If a local gym uses price discrimination,it will charge the higher price to the group with the most price elastic demand. C)Although the different groups have different price elasticities of demand,they have the same willingness-to-pay for gym memberships. D)Price discrimination will not benefit a local gym.

Suppose that the price elasticities of demand for pharmaceutical products differ across several customer groups.If senior citizens have the most elastic demand for pharmaceutical products,they will receive: A)the greatest quantity of pharmaceutical products. B)the highest price for pharmaceutical products. C)the lowest price for pharmaceutical products. D)the smallest quantity of pharmaceutical products.

If Coca Cola Company uses heat sensors and microchips to automatically change prices of its products.Which of the following economically describes Coca Cola's goal to charge higher prices for a can of Coke on a hot day? A)price discrimination B)rent-seeking C)deadweight loss D)internalizing an externality

Recall the application about why movie popcorn costs so much,what happens with the high demander and low demanders if the movie theater were to lower the price of the popcorn from $4 to $0.10 and increase the admission from $10 to $12? A)The low demander will still see the movie and buy popcorn. B)The high demander will see the movie and buy popcorn same as the low demander. C)The high demander will see the movie and buy popcorn and the low demander will not do either. D)The high demander will not see the movie and buy popcorn.

Price discrimination is best described as a firm charging different prices from other firms selling the same product or service.

If you buy a 1 gallon paint and the manufacturer gives you $5 dollars off mail in rebate and you mail the receipt to claim the rebate.You are not willing to pay as much as the typical consumer.

For effective price discrimination,the firm must ensure that the product is able to be resold.

Price discrimination can be an effective way to increase a firm's profit if the price elasticity of demand is the same across all buyers the firm serves.

Given that a firm can divide its customers into two groups with different price elasticities of demand,a firm will charge a lower price to the group with the inelastic demand.

Manufacturer's rebates for appliances are an example of price discrimination.

Firms in perfectly competitive markets are able to price discriminate.

Price discrimination in practice is illegal.

What is price discrimination?

Provide three examples of price discrimination.

What three conditions must be met in order for a firm to be able to price discriminate?

Explain why a firm may choose to price discriminate.

The price elasticity of demand for restaurant meals is 1.5 for type A consumers and 0.9 for type B consumers.If a restaurant decides to price discriminate,which group will be charged a higher price? Explain.

In which of the following markets is price discrimination likely? Explain. (a)Televisions (b)Airline travel (c)Wheat