Question 1

Price discrimination,if possible,allows a price-setting firm to increase its profits by

Accepted Answer

A) shifting its cost curves downward. 
B) raising the price above the competitive price. 
C) charging different prices according to the willingness to pay of each consumer. 
D) reducing costs through a reduction in output. 
E) charging different prices according to the different marginal cost on each unit. 
A) shifting its cost curves downward. 
B) raising the price above the competitive price. 
C) charging different prices according to the willingness to pay of each consumer. 
D) reducing costs through a reduction in output. 
E) charging different prices according to the different marginal cost on each unit. C

Question 2

The diagram below shows the demand curve and marginal cost and marginal revenue curves for a new heart medication for which the pharmaceutical firm holds a 20-year patent on its production and sales.This protection gives the firm monopoly power for the 20 years of the patent.
   FIGURE 10-6
-Refer to Figure 10-6.Assume this pharmaceutical firm charges a single price for its drug.At its profit-maximizing level of output it will produce

Accepted Answer

A) Q0 units and charge the perfectly competitive price. 
B) Q0 units and charge a price of p0. 
C) Q1 units and charge a price of p1. 
D) Q0 units and charge a price of p2. 
E) Q1 units and charge a price greater than its average total variable cost. 
A) Q0 units and charge the perfectly competitive price. 
B) Q0 units and charge a price of p0. 
C) Q1 units and charge a price of p1. 
D) Q0 units and charge a price of p2. 
E) Q1 units and charge a price greater than its average total variable cost. B

Question 3

The average revenue curve for a single-price monopolist

Accepted Answer

A) is a horizontal line,equal to the price of its product. 
B) lies below its demand curve. 
C) coincides with its demand curve. 
D) slopes upward to the right. 
E) does not exist. 
A) is a horizontal line,equal to the price of its product. 
B) lies below its demand curve. 
C) coincides with its demand curve. 
D) slopes upward to the right. 
E) does not exist. C

Question 4

Consider the following AR and MR curves for a single-price monopolist.
   FIGURE 10-2
-Refer to Figure 10-2.If marginal costs were positive and constant but less than A,the profit-maximizing output for this single-price monopolist would be

Accepted Answer

A) 0. 
B) greater than zero,but less than Q1. 
C) greater than zero,but less than Q2. 
D) equal to Q2. 
E) between Q2 and Q4. 
A) 0. 
B) greater than zero,but less than Q1. 
C) greater than zero,but less than Q2. 
D) equal to Q2. 
E) between Q2 and Q4.

Question 5

Monopolistic firms do not have supply curves because

Accepted Answer

A) they are not constrained by the marginal costs of production. 
B) their output is a fixed quantity. 
C) monopolists get to choose their price-quantity combination along the demand curve. 
D) monopolists face a given market price. 
E) their marginal costs cannot be calculated. 
A) they are not constrained by the marginal costs of production. 
B) their output is a fixed quantity. 
C) monopolists get to choose their price-quantity combination along the demand curve. 
D) monopolists face a given market price. 
E) their marginal costs cannot be calculated.

Question 6

The diagram below shows the demand curve and marginal cost and marginal revenue curves for a new heart medication for which the pharmaceutical firm holds a 20-year patent on its production and sales.This protection gives the firm monopoly power for the 20 years of the patent.
   FIGURE 10-6
-Refer to Figure 10-6.Assume this pharmaceutical firm charges a single price for its drug.At its profit-maximizing level of output,it will generate a deadweight loss to society represented by

Accepted Answer

A) areas H + I. 
B) areas H + I + J + K. 
C) areas I + J + K. 
D) There is no deadweight loss generated. 
E) It is not possible to determine with the information provided. 
A) areas H + I. 
B) areas H + I + J + K. 
C) areas I + J + K. 
D) There is no deadweight loss generated. 
E) It is not possible to determine with the information provided.

Question 7

If a single-price monopoly is presently producing an output at which marginal revenue is less than marginal cost,it can increase its profits by

Accepted Answer

A) reducing output and raising prices. 
B) reducing output and holding prices unchanged. 
C) expanding output and lowering price. 
D) expanding output and raising price. 
E) reducing barriers to entry. 
A) reducing output and raising prices. 
B) reducing output and holding prices unchanged. 
C) expanding output and lowering price. 
D) expanding output and raising price. 
E) reducing barriers to entry.

Question 8

If a monopolistʹs marginal revenue is MR = 15 - 2Q and its marginal cost is MC = 5,then the profit-maximizing quantity is

Accepted Answer

A) 0. 
B) 5. 
C) 7.5. 
D) 10. 
E) 15. 
A) 0. 
B) 5. 
C) 7.5. 
D) 10. 
E) 15.

Question 9

Which one of the following cases is NOT an example of price discrimination?

Accepted Answer

A) Airlines charge different fares for business people than tourist travelers. 
B) Young males are charged higher premiums for car insurance than older males or women. 
C) A local phone company charges different telephone rates to residential and business users. 
D) Electric companies charge different rates to commercial and residential users for electricity. 
E) Theatres charge different rates for different age groups. 
A) Airlines charge different fares for business people than tourist travelers. 
B) Young males are charged higher premiums for car insurance than older males or women. 
C) A local phone company charges different telephone rates to residential and business users. 
D) Electric companies charge different rates to commercial and residential users for electricity. 
E) Theatres charge different rates for different age groups.

Question 10

The demand curve facing a single-price monopolist slopes downward because

Accepted Answer

A) its average revenue equals its marginal revenue. 
B) its demand curve is the market demand curve,which is generally downward sloping. 
C) demand is perfectly inelastic. 
D) it sells typically to only one consumer. 
E) its supply curve is upward sloping. 
A) its average revenue equals its marginal revenue. 
B) its demand curve is the market demand curve,which is generally downward sloping. 
C) demand is perfectly inelastic. 
D) it sells typically to only one consumer. 
E) its supply curve is upward sloping.

Question 11

If a single-price monopolistʹs price equals marginal cost,the firm

Accepted Answer

A) could increase its profits by lowering output and raising price. 
B) should maintain its current price because it is a price taker. 
C) will find it more profitable to produce a greater output. 
D) is producing where MR = MC and thus is maximizing profits. 
E) should definitely shut down. 
A) could increase its profits by lowering output and raising price. 
B) should maintain its current price because it is a price taker. 
C) will find it more profitable to produce a greater output. 
D) is producing where MR = MC and thus is maximizing profits. 
E) should definitely shut down.

Question 12

Which of the following statements describes a major difference between monopoly and perfect competition?

Accepted Answer

A) Perfectly competitive firms cannot maintain positive economic profits in the long run,whereas monopolists can. 
B) Monopolists do not consider consumer demand when choosing price and output levels. 
C) Monopolistic firms tend to maximize revenue while perfectly competitive firms maximize profit. 
D) Monopolistic firms emphasize cost minimization whereas perfectly competitive firms emphasize profit maximization. 
E) Perfectly competitive firms can never earn economic profits; monopolistic firms always earn economic profits. 
A) Perfectly competitive firms cannot maintain positive economic profits in the long run,whereas monopolists can. 
B) Monopolists do not consider consumer demand when choosing price and output levels. 
C) Monopolistic firms tend to maximize revenue while perfectly competitive firms maximize profit. 
D) Monopolistic firms emphasize cost minimization whereas perfectly competitive firms emphasize profit maximization. 
E) Perfectly competitive firms can never earn economic profits; monopolistic firms always earn economic profits.

Question 13

Suppose the technology of an industry is such that the typical firmʹs minimum efficient scale is 8000 units per month at an average long-run cost of $5 per unit.If the total quantity demanded at a price of $5 per unit is 8500 units per month,the likely result would be

Accepted Answer

A) a cartel. 
B) a concentrated oligopoly. 
C) a natural monopoly. 
D) price discrimination. 
E) perfectly competitive firms. 
A) a cartel. 
B) a concentrated oligopoly. 
C) a natural monopoly. 
D) price discrimination. 
E) perfectly competitive firms.

Question 14

Consider the following AR and MR curves for a single-price monopolist.
   FIGURE 10-2
-Refer to Figure 10-2.The price elasticity of demand at Q1 is

Accepted Answer

A) zero. 
B) less than 1. 
C) equal to 1. 
D) greater than 1. 
E) not determinable from the diagram. 
A) zero. 
B) less than 1. 
C) equal to 1. 
D) greater than 1. 
E) not determinable from the diagram.

Question 15

The diagram below shows total revenue for a single-price monopolist.
   FIGURE 10-3
-A single-price monopolist is currently producing an output level where P = $320,MR = $200,AVC = $327,and MC = $200.In order to maximize profits,this firm should

Accepted Answer

A) increase production and reduce prices. 
B) decrease production and increase prices. 
C) not change its output level,because the firm is currently at its profit maximizing level. 
D) produce zero output. 
E) There is insufficient information to make a recommendation. 
A) increase production and reduce prices. 
B) decrease production and increase prices. 
C) not change its output level,because the firm is currently at its profit maximizing level. 
D) produce zero output. 
E) There is insufficient information to make a recommendation.

Question 16

A number of firms agreeing together to restrict output and thereby raise prices is known as

Accepted Answer

A) a monopoly. 
B) a natural monopoly. 
C) a cartel. 
D) a barrier to entry. 
E) an oligopoly. 
A) a monopoly. 
B) a natural monopoly. 
C) a cartel. 
D) a barrier to entry. 
E) an oligopoly.

Question 17

Suppose that a single-price monopolist calculates that at its present output,marginal revenue is $2 and marginal cost is $1.If the price of the product is $3,the monopolist could maximize its profits by

Accepted Answer

A) lowering price and raising output. 
B) lowering price and leaving output unchanged. 
C) raising price and leaving output unchanged. 
D) doing nothing. 
E) shutting down. 
A) lowering price and raising output. 
B) lowering price and leaving output unchanged. 
C) raising price and leaving output unchanged. 
D) doing nothing. 
E) shutting down.

Question 18

If an industryʹs demand conditions allow at most one firm to cover its costs while producing at its minimum efficient scale (MES),this situation is known as

Accepted Answer

A) a discriminating monopoly. 
B) a natural monopoly. 
C) declining marginal revenue. 
D) limited competition. 
E) natural economic limits. 
A) a discriminating monopoly. 
B) a natural monopoly. 
C) declining marginal revenue. 
D) limited competition. 
E) natural economic limits.

Question 19

The diagram below shows the demand curve and marginal cost and marginal revenue curves for a new heart medication for which the pharmaceutical firm holds a 20-year patent on its production and sales.This protection gives the firm monopoly power for the 20 years of the patent.
   FIGURE 10-6
-Refer to Figure 10-6.Assume this pharmaceutical firm charges a single price for its drug.At its profit-maximizing level of output,consumer surplus is represented by

Accepted Answer

A) areas H + I. 
B) areas C + D + E + F. 
C) areas D + E. 
D) There is no consumer surplus generated. 
E) It is not possible to determine with the information provided. 
A) areas H + I. 
B) areas C + D + E + F. 
C) areas D + E. 
D) There is no consumer surplus generated. 
E) It is not possible to determine with the information provided.

Question 20

Suppose you go to a retailerʹs website and print a coupon that gives you a discount on your next purchase at their store.But your friend,who also plans to purchase there,canʹt be bothered.You are revealing to the store that

Accepted Answer

A) you have a lower income than your friend. 
B) you understand price discrimination and your friend does not. 
C) you have a lower elasticity of demand than your friend. 
D) you have a higher elasticity of demand than your friend. 
E) elasticity of demand changes according to the size of the discount offered. 
A) you have a lower income than your friend. 
B) you understand price discrimination and your friend does not. 
C) you have a lower elasticity of demand than your friend. 
D) you have a higher elasticity of demand than your friend. 
E) elasticity of demand changes according to the size of the discount offered.

Exam 10: Monopoly, cartels, and Price Discrimination

Price discrimination,if possible,allows a price-setting firm to increase its profits by

The average revenue curve for a single-price monopolist

Consider the following AR and MR curves for a single-price monopolist. FIGURE 10-2 -Refer to Figure 10-2.If marginal costs were positive and constant but less than A,the profit-maximizing output for this single-price monopolist would be

Monopolistic firms do not have supply curves because

If a single-price monopoly is presently producing an output at which marginal revenue is less than marginal cost,it can increase its profits by

If a monopolistʹs marginal revenue is MR = 15 - 2Q and its marginal cost is MC = 5,then the profit-maximizing quantity is

Which one of the following cases is NOT an example of price discrimination?

The demand curve facing a single-price monopolist slopes downward because

If a single-price monopolistʹs price equals marginal cost,the firm

Which of the following statements describes a major difference between monopoly and perfect competition?

Suppose the technology of an industry is such that the typical firmʹs minimum efficient scale is 8000 units per month at an average long-run cost of $5 per unit.If the total quantity demanded at a price of $5 per unit is 8500 units per month,the likely result would be

Consider the following AR and MR curves for a single-price monopolist. FIGURE 10-2 -Refer to Figure 10-2.The price elasticity of demand at Q1 is

The diagram below shows total revenue for a single-price monopolist. FIGURE 10-3 -A single-price monopolist is currently producing an output level where P = $320,MR = $200,AVC = $327,and MC = $200.In order to maximize profits,this firm should

A number of firms agreeing together to restrict output and thereby raise prices is known as

Suppose that a single-price monopolist calculates that at its present output,marginal revenue is $2 and marginal cost is $1.If the price of the product is $3,the monopolist could maximize its profits by

If an industryʹs demand conditions allow at most one firm to cover its costs while producing at its minimum efficient scale (MES),this situation is known as

Suppose you go to a retailerʹs website and print a coupon that gives you a discount on your next purchase at their store.But your friend,who also plans to purchase there,canʹt be bothered.You are revealing to the store that

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