Question 1

Figure 13.1
  
Figure 13.1 above shows the demand and cost curves facing a monopolist.
-Refer to Figure 13.1.To maximize profit, the firm will produce

Accepted Answer

The monopolist will maximize profit by producing where marginal revenue (MR) equals marginal cost (MC). In the given graph, this occurs at output level Q₂, where MR intersects MC. Therefore, the best choice is Q₂.

Question 2

Figure 13.1
  
Figure 13.1 above shows the demand and cost curves facing a monopolist.
-Refer to Figure 13.1.The firm's profit-maximizing price is

Accepted Answer

The answer of Figure 13.1
  
Figure 13.1 above shows...

Question 3

If a monopolist's marginal revenue is $25 a unit and its marginal cost is $25, then

Accepted Answer

When marginal revenue is equal to marginal cost, the monopolist is already producing the profit-maximizing level of output. Therefore, the firm should continue to produce the output it is producing.

Question 4

Figure 13.1
  
Figure 13.1 above shows the demand and cost curves facing a monopolist.
-Refer to Figure 13.1.If the firm's average total cost curve is ATC₂, the firm will

Accepted Answer

The answer of Figure 13.1
  
Figure 13.1 above shows...

Question 5

Most pharmaceutical firms selling prescription drugs continue to earn economic profits long after the patents on the prescription drugs expire because they have established a strong foothold in the market.

Accepted Answer

The answer of Most pharmaceutical firms selling prescription drugs continue...

Question 6

Figure 13.1
  
Figure 13.1 above shows the demand and cost curves facing a monopolist.
-Refer to Figure 13.1.If the firm's average total cost curve is ATC₁, the firm will

Accepted Answer

If the firm's average total cost curve is ATC₁ and it is below the market price, the firm will make a profit as its costs are lower than the revenue it earns per unit.

Question 7

Provide two examples of a government barrier to entry?

Accepted Answer

The answer of Provide two examples of a government barrier...

Question 8

The National Hockey League has long-term leases with the arenas in major cities.Control of these arenas is an entry barrier to a potential new hockey league.

Accepted Answer

The NHL's long-term leases with arenas in major cities give them control over these venues, making it difficult for potential new hockey leagues to secure suitable arenas as an entry barrier.

Question 9

How does a network externality serve as a barrier to entry? Is this barrier surmountable? Explain.

Accepted Answer

The answer of How does a network externality serve as...

Question 10

The demand curve for the monopoly's product is

Accepted Answer

The answer of The demand curve for the monopoly's product...

Question 11

For a natural monopoly, the marginal cost of producing an additional unit of its product is relatively small.

Accepted Answer

A natural monopoly occurs when one firm can produce the entire output of a market at a lower cost than two or more firms could achieve. This means that the marginal cost of producing an additional unit of its product is relatively small, as the firm benefits from economies of scale. As the firm grows and produces more output, its average cost decreases, leading to a declining marginal cost.

Question 12

If a theatre company expects $250,000 in ticket revenue from five performances and $288,000 in ticket revenue if it adds a sixth performance, the

Accepted Answer

The difference in ticket revenue between the five performances and the six performances is $288,000 - $250,000 = $38,000. This is the additional revenue the theatre company would make by adding a sixth performance. Therefore, the marginal revenue of the sixth performance is $38,000.

Question 13

What gives rise to a natural monopoly? How do consumers benefit from a natural monopoly?

Accepted Answer

The answer of What gives rise to a natural monopoly?...

Question 14

Because a monopoly's demand curve is the same as the market demand curve for its product,

Accepted Answer

The answer of Because a monopoly's demand curve is the...

Question 15

Microsoft hires marketing and sales specialists to decide what prices it should set for its products, whereas a wealthy wheat farmer in Saskatchewan, who sells his output in the world commodity market, does not.Why is this so?

Accepted Answer

The answer of Microsoft hires marketing and sales specialists to...

Question 16

Figure 13.1
  
Figure 13.1 above shows the demand and cost curves facing a monopolist.
-Refer to Figure 13.1.If the firm's average total cost curve is ATC₃, the firm will

Accepted Answer

When the average total cost curve is ATC₃, the firm is producing at a quantity of Q₂, which is below the profit-maximizing quantity of Q₁. This means that the firm is not producing enough to cover its fixed costs and is therefore incurring losses.

Question 17

A natural monopoly is characterized by large fixed costs relative to variable costs.

Accepted Answer

Natural monopolies arise when the fixed costs of production are so high relative to variable costs that it is most efficient for only one firm to supply the market. This is known as economies of scale, which means that the average cost of production decreases as the quantity produced increases.

Question 18

If a firm's average total cost is less than price where MR=MC,

Accepted Answer

If a firm's average total cost is less than price where MR=MC, it means that the firm is making a profit on each unit it produces. Continuing to produce the current output will result in more profits for the firm. Shutting down would be a bad financial decision as it would result in a loss of revenue and would not be profitable for the firm. Raising the price would result in a decrease in demand, which would lower the profit. Cutting back on output would also result in a loss of revenue and would not make sense if the firm is already profitable. Therefore, the best choice in this scenario is to continue producing the current output.

Question 19

If a monopolist's price is $50 per unit and its marginal cost is $25, then

Accepted Answer

The answer of If a monopolist's price is $50 per...

Question 20

A monopolist's profit maximizing price and output correspond to the point on a graph

Accepted Answer

A monopolist's profit maximizing price and output occur where marginal revenue (MR) equals marginal cost (MC), as long as the price is on the market demand curve for that output. This is because at this point, the monopolist is producing the output level where the last unit produced adds as much to revenue as it does to cost. Therefore, the monopolist is maximizing their profits. Option A is incorrect because although average total cost (ATC) is important for determining the price, the goal is not to minimize ATC but to maximize profits. Option B is incorrect because total costs are not relevant for determining the profit-maximizing price and output, as it is the relationship between revenue and cost (MR=MC) that matters. Option D is incorrect because while the monopolist wants to charge a high price, the profit-maximizing price is not necessarily as high as possible but rather corresponds to the point where MR=MC on the demand curve.

Quiz 13: Monopoly and Antitrust Policy

Figure 13.1 Figure 13.1 above shows the demand and cost curves facing a monopolist. -Refer to Figure 13.1.To maximize profit, the firm will produce

Figure 13.1 Figure 13.1 above shows the demand and cost curves facing a monopolist. -Refer to Figure 13.1.The firm's profit-maximizing price is