Question 1

In a monopolistically competitive industry with zero profits, each firm will produce less than the amount that minimizes average costs.

Accepted Answer

A) True 
 B)False

Question 2

Miron Floren, of Lawrence Welk Show fame, now tours the country performing at accordion concerts.A careful analysis of demand for tickets to Mr.Floren's concerts reveals a strange segmentation in the market.Demand for tickets by senior citizens is described by Q0 = 500P-3/2 while demand by those under 65 years old is Qy = 50P-4.If the marginal cost of a ticket is $4, how should tickets to Mr.Floren's concerts be priced to maximize profits?

Accepted Answer

A) $16 for senior citizens and $6 for those younger 
B) $12 for senior citizens and $5.33 for those younger 
C) $6.29 for all tickets 
D) $4 for senior citizens and $10.67 for those younger 
E) $8 for senior citizens and $16 for those younger 
A) $16 for senior citizens and $6 for those younger 
B) $12 for senior citizens and $5.33 for those younger 
C) $6.29 for all tickets 
D) $4 for senior citizens and $10.67 for those younger 
E) $8 for senior citizens and $16 for those younger

Question 3

A careful analysis of demand for Bubbles in Strasburg, North Dakota, reveals a strange segmentation in the market.(Recall Bubbles is the beverage which produces an unexplained craving for Lawrence Welk's music.It is produced by the process Q= min{R/5, W }, where R is the number of pulverized Lawrence Welk records and W is gallons of North Dakota well water.PR = $1, PW = $4.)If demand for Bubbles by senior citizens is described by Q0 = 500P-3/2 while demand by those under 65 years old is Qy = 50P-5, how should Bubbles be priced to maximize profits?

Accepted Answer

A) $13 for all citizens of Strasburg 
B) $9 for senior citizens and $30 for those younger 
C) $27 for senior citizens and $11.25 for those younger 
D) $13.50 for senior citizens and $45 for those younger 
E) $60 for senior citizens and $25 for those younger 
A) $13 for all citizens of Strasburg 
B) $9 for senior citizens and $30 for those younger 
C) $27 for senior citizens and $11.25 for those younger 
D) $13.50 for senior citizens and $45 for those younger 
E) $60 for senior citizens and $25 for those younger

Question 4

A profit-maximizing monopolist practices third-degree price discrimination.If he charges p1 in market 1 and p2 in market 2, where p1 > p2, then if the law forced him to charge the same price in both markets, more would be demanded in market 1 than in market 2.

Accepted Answer

A) True 
 B)False

Question 5

A price-discriminating monopolist charges p1 in market 1 and p2 in market 2.If p1 > p2, the absolute value of the price elasticity in market 1 at price p1 must be smaller than the absolute value of the price elasticity in market 2 at price p2.

Accepted Answer

A) True 
 B)False

Question 6

In order to maximize his profits, a monopolist who practices third-degree price discrimination with two or more markets should charge higher prices in markets with more inelastic demand functions.

Accepted Answer

A) True 
 B)False

Question 7

A monopolist sells in two markets.The demand curve for her product is given by p1 = 122 - 2x1 in the first market and p2 = 306 - 5x2 in the second market, where xi is the quantity sold in market i and pi is the price charged in market i.She has a constant marginal cost of production, c = 6, and no fixed costs.She can charge different prices in the two markets.What is the profit-maximizing combination of quantities for this monopolist?

Accepted Answer

A) x1 = 58 and x2 = 32. 
B) x1 = 29 and x2 = 30. 
C) x1 = 59 and x2 = 29. 
D) x1 = 39 and x2 = 28. 
E) x1 = 49 and x2 = 40. 
A) x1 = 58 and x2 = 32. 
B) x1 = 29 and x2 = 30. 
C) x1 = 59 and x2 = 29. 
D) x1 = 39 and x2 = 28. 
E) x1 = 49 and x2 = 40.

Question 8

A discriminating monopolist is able to charge different prices in two different markets.If when the same price is charged in both markets, the quantity demanded in market 1 is always greater than the quantity demanded in market 2, then in order to maximize profits, the monopolist should charge a higher price in market 1 than in market 2.

Accepted Answer

A) True 
 B)False

Question 9

Roach Motors has a monopoly on used cars in Enigma, Ohio.By installing secret microphones in the showroom, the friendly salespersons at Roach are able to learn each customer's willingness to pay and can therefore practice first-degree price discrimination, extracting from each customer his entire consumer's surplus.The inverse demand function for cars in Enigma is P = 2,000 - 10Q.Roach Motors purchases its stock of used cars at an auction in Cleveland for $500 each.Roach motors will

Accepted Answer

A) sell 75 cars for a total profit of $56,250. 
B) sell 150 cars at a price of $300 a car. 
C) sell 150 cars for a total profit of $112,500. 
D) sell 180 cars and make a total profit of $180,000. 
E) shut down since revenue will not cover variable costs. 
A) sell 75 cars for a total profit of $56,250. 
B) sell 150 cars at a price of $300 a car. 
C) sell 150 cars for a total profit of $112,500. 
D) sell 180 cars and make a total profit of $180,000. 
E) shut down since revenue will not cover variable costs.

Question 10

Bayerische Motoren Werk (BMW)charges a considerably higher price for its automobiles in the North American market than it does in its home market of Europe.Assuming that the goal of BMW's pricing policy is profit maximization, which of the following would be a plausible explanation for BMW's pricing policy?

Accepted Answer

A) The income elasticity of demand in North America must be greater than 1, making BMWs a luxury good in North America, and between 0 and 1 in Europe, making BMWs a normal good there. 
B) The income elasticity of demand in North America must be between 0 and 1, making BMWs a normal good in North America, and less than 0 in Europe, making BMWs an inferior good there. 
C) The price elasticity of demand in North America must be greater than 1, making the demand for BMWs price elastic in North America, and between 0 and 1 in Europe, making the demand for BMWs price inelastic there. 
D) The income elasticity of demand in both North America and Europe is greater than 1, since BMWs are a luxury good, but per capita income in North America is much higher than in Europe. 
E) The price elasticity of demand is greater than 1 in both North America and Europe, making BMWs price elastic, but it must be higher in Europe. 
A) The income elasticity of demand in North America must be greater than 1, making BMWs a luxury good in North America, and between 0 and 1 in Europe, making BMWs a normal good there. 
B) The income elasticity of demand in North America must be between 0 and 1, making BMWs a normal good in North America, and less than 0 in Europe, making BMWs an inferior good there. 
C) The price elasticity of demand in North America must be greater than 1, making the demand for BMWs price elastic in North America, and between 0 and 1 in Europe, making the demand for BMWs price inelastic there. 
D) The income elasticity of demand in both North America and Europe is greater than 1, since BMWs are a luxury good, but per capita income in North America is much higher than in Europe. 
E) The price elasticity of demand is greater than 1 in both North America and Europe, making BMWs price elastic, but it must be higher in Europe.

Question 11

Third-degree price discrimination occurs when a monopolist sells output to different people at different prices but every unit that an individual buys costs the same amount.

Accepted Answer

A) True 
 B)False

Question 12

Miron Floren, of Lawrence Welk Show fame, now tours the country performing at accordion concerts.A careful analysis of demand for tickets to Mr.Floren's concerts reveals a strange segmentation in the market.Demand for tickets by senior citizens is described by Q0= 500P-3/2 while demand by those under 65 years old is Qy  =50P-5.If the marginal cost of a ticket is $3, how should tickets to Mr.Floren's concerts be priced to maximize profits?

Accepted Answer

A) $15 for senior citizens and $4.50 for those younger 
B) $4.33 for all tickets 
C) $9 for senior citizens and $3.75 for those younger 
D) $3 for senior citizens and $10 for those younger 
E) $6 for senior citizens and $12 for those younger 
A) $15 for senior citizens and $4.50 for those younger 
B) $4.33 for all tickets 
C) $9 for senior citizens and $3.75 for those younger 
D) $3 for senior citizens and $10 for those younger 
E) $6 for senior citizens and $12 for those younger

Question 13

It is possible that a profit-maximizing monopolist who is able to practice first-degree (perfect)price discrimination would sell a quantity x such that the demand curve for his product is inelastic when the quantity sold is x.

Accepted Answer

A) True 
 B)False

Question 14

A monopolist who is able to practice third-degree price discrimination charges a higher price in the market that is more elastic.

Accepted Answer

A) True 
 B)False

Exam 24: Monopoly Behavior-Part A

In a monopolistically competitive industry with zero profits, each firm will produce less than the amount that minimizes average costs.

A profit-maximizing monopolist practices third-degree price discrimination.If he charges p1 in market 1 and p2 in market 2, where p1 > p2, then if the law forced him to charge the same price in both markets, more would be demanded in market 1 than in market 2.

A price-discriminating monopolist charges p1 in market 1 and p2 in market 2.If p1 > p2, the absolute value of the price elasticity in market 1 at price p1 must be smaller than the absolute value of the price elasticity in market 2 at price p2.

In order to maximize his profits, a monopolist who practices third-degree price discrimination with two or more markets should charge higher prices in markets with more inelastic demand functions.

Third-degree price discrimination occurs when a monopolist sells output to different people at different prices but every unit that an individual buys costs the same amount.

It is possible that a profit-maximizing monopolist who is able to practice first-degree (perfect)price discrimination would sell a quantity x such that the demand curve for his product is inelastic when the quantity sold is x.

A monopolist who is able to practice third-degree price discrimination charges a higher price in the market that is more elastic.

Budget Constraint-Part A

Budget Constraint-Part B

Preferences-Part A

Preferences-Part B

Utility-Part A

Utility-Part B

Choice-Part A

Choice-Part B

Demand-Part A

Demand-Part B

Revealed Preference-Part A

Revealed Preference-Part B

Slutsky Equation-Part A

Slutsky Equation-Part B

Buying and Selling-Part A

Buying and Selling-Part B

Intertemporal Choice-Part A

Intertemporal Choice-Part B

Asset Markets-Part A

Asset Markets-Part B

Uncertainty-Part A

Uncertainty-Part B

Risky Assets-Part A

Risky Assets-Part B

Consumers Surplus-Part A

Consumers Surplus-Part B

Market Demand-Part A

Market Demand-Part B

Equilibrium-Part A

Equilibrium-Part B

Auctions-Part A

Auctions-Part B

Technology-Part A

Technology-Part B

Profit Maximization-Part A

Profit Maximization-Part B

Cost Minimization-Part A

Cost Minimization-Part B

Cost Curves-Part A

Cost Curves-Part B

Firm Supply-Part A

Firm Supply-Part B

Industry Supply-Part A

Industry Supply-Part B

Monopoly-Part A

Monopoly-Part B

Monopoly Behavior-Part B

Factor Markets-Part A

Factor Markets-Part B

Oligopoly-Part A

Oligopoly-Part B

Game Theory-Part A

Game Theory-Part B

Game Applications-Part A

Game Applications-Part B

Behavioral Economics

Exchange-Part A

Exchange-Part B

Production-Part A

Production-Part B

Welfare-Part A

Welfare-Part B

Externalities-Part A

Externalities-Part B

Information Technology-Part A

Information Technology-Part B

Public Goods-Part A

Public Goods-Part B

Asymmetric Information-Part A

Asymmetric Information-Part B

Filters

A profit-maximizing monopolist practices third-degree price discrimination.If he charges p₁ in market 1 and p₂ in market 2, where p₁ > p₂, then if the law forced him to charge the same price in both markets, more would be demanded in market 1 than in market 2.

A price-discriminating monopolist charges p₁ in market 1 and p₂ in market 2.If p₁ > p₂, the absolute value of the price elasticity in market 1 at price p₁ must be smaller than the absolute value of the price elasticity in market 2 at price p₂.