Deck 10: Monopoly,cartels,and Price Discrimination

Question 1

TABLE 10- 2 Your food- services company has been named as the sole provider of meals at a small university.The cost and demand schedules are: $$\begin{array} { | c | c | c | c | c | } \hline \text { Sold per Day } & \begin{array} { c } \text { Price per } \\\text { Meal }\end{array} & \begin{array} { c } \text { Total } \\\text { Fixed Cost }\end{array} & \begin{array} { c } \text { Total } \\\text { Variable Cost }\end{array} & \begin{array} { c } \text { Total } \\\text { Revenue }\end{array} \\\hline 0 & \$ 3.50 & \$ 150 & \$ 0 & \$ 0 \\\hline 100 & \$ 3.25 & \$ 150 & \$ 300 & \$ 325 \\\hline 200 & \$ 3.00 & \$ 150 & \$ 500 & \$ 600 \\\hline 300 & \$ 275 & \$ 150 & \$ 650 & \$ 825 \\\hline 400 & \$ 250 & \$ 150 & \$ 750 & \$ 1000 \\\hline 500 & \$ 225 & \$ 150 & \$ 830 & \$ 1125 \\\hline 600 & \$ 200 & \$ 150 & \$ 905 & \$ 1200 \\\hline 700 & \$ 1.75 & \$ 150 & \$ 995 & \$ 1225 \\\hline\end{array}$$

-Refer to Table 10- 2.If the firm were to shut down in the short run its losses per day would be

A)equal to its total cost.
B)zero.
C)equal to its total revenue.
D)equal to its average variable cost.
E)$150.

Answer 1

$150.

Question 2

The diagram below shows a pharmaceutical firm's demand curve and marginal cost and marginal revenue curves for a new heart medication for which the firm holds a 20- year patent on its production.
FIGURE 10- 5
Refer to Figure 10- 5.Assume this pharmaceutical firm is practicing perfect price discrimination among its buyers.At its profit- maximizing level of output it will produce

A)Q1 units and charge a price of p1 on the last unit sold.
B)Q0 units and charge a price of p0 on the last unit sold.
C)Q1 units and charge a price of p1 on all units.
D)Q0 units and charge a price of p0 on all units.
E)It is not possible to determine with the information provided.

Answer 2

A

Question 3

Marginal revenue is less than price for a single- price monopolist because the

A)monopolist has achieved economies of scale.
B)monopolist charges a price higher than the unit production cost.
C)firm must lower its price for all units if it wants to sell more of the product.
D)firm's output decisions do not affect the selling price.
E)monopolist must worry about how its price setting will lead to entry by other firms.

Answer 3

C

Question 4

The diagram below shows a pharmaceutical firm's demand curve and marginal cost and marginal revenue curves for a new heart medication for which the firm holds a 20- year patent on its production.
FIGURE 10- 5
The two characteristic problems for cartels are

A)agreeing on the price to be set and coordinating marketing policies.
B)policing members' output restrictions and preventing new entrants.
C)policing members' prices and restricting output.
D)coordinating marketing policies and policing members' quotas.
E)agreeing on the price to be set and preventing new entrants.

Question 5

FIGURE 10- 4 Suppose a monopolist faces the demand curve and cost curves shown below.

Refer to Figure 10- 4.If this single- price monopolist is producing at the profit- maximizing level of output,the total profit is represented by the area

A)P3ceP2.
B)0P4aQ0.
C)0P0fQ0.
D)0P2bQ0.
E)P4abP2.

Question 6

Relative to a firm that must charge a single price for all of its output,the ability to charge multiple prices gives a firm with market power the ability to capture some or all of the

A)consumer surplus.
B)marginal costs.
C)producer surplus.
D)fixed costs.
E)variable costs.

Question 7

Consider a profit- maximizing single- price monopolist that faces a linear demand curve.The firm sets price where the price elasticity of demand is

A)zero.
B)greater than one.
C)infinite.
D)less than one.
E)one.

Question 8

A single- price monopolist is currently producing an output level where P = $20,MR = $13,ATC = $15,and MC = $14.In order to maximize profits,this monopolist should

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

Question 9

One reason movie theatres charge a lower admission price to senior citizens is that

A)senior citizens have a less elastic demand than other movie- goers.
B)senior citizens have a more elastic demand than other movie- goers.
C)government sets the price policies.
D)movie- theatre owners are able to practice perfect price discrimination.
E)senior citizens have a higher willingness- to- pay than other people.

Question 10

The diagram below shows total revenue for a single- price monopolist.
FIGURE 10- 3
Refer to Figure 10- 3.The price elasticity of demand at Q3 is

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

Question 11

TABLE 10- 2 Your food- services company has been named as the sole provider of meals at a small university.The cost and demand schedules are: $$\begin{array} { | c | c | c | c | c | } \hline \text { Sold per Day } & \begin{array} { c } \text { Price per } \\\text { Meal }\end{array} & \begin{array} { c } \text { Total } \\\text { Fixed Cost }\end{array} & \begin{array} { c } \text { Total } \\\text { Variable Cost }\end{array} & \begin{array} { c } \text { Total } \\\text { Revenue }\end{array} \\\hline 0 & \$ 3.50 & \$ 150 & \$ 0 & \$ 0 \\\hline 100 & \$ 3.25 & \$ 150 & \$ 300 & \$ 325 \\\hline 200 & \$ 3.00 & \$ 150 & \$ 500 & \$ 600 \\\hline 300 & \$ 275 & \$ 150 & \$ 650 & \$ 825 \\\hline 400 & \$ 250 & \$ 150 & \$ 750 & \$ 1000 \\\hline 500 & \$ 225 & \$ 150 & \$ 830 & \$ 1125 \\\hline 600 & \$ 200 & \$ 150 & \$ 905 & \$ 1200 \\\hline 700 & \$ 1.75 & \$ 150 & \$ 995 & \$ 1225 \\\hline\end{array}$$

-For a monopolist,the profit- maximizing level of output occurs where

A)MC = 0.
B)MR = MC.
C)MC = price.
D)MR = AC.
E)MC = AR.

Question 12

TABLE 10- 2 Your food- services company has been named as the sole provider of meals at a small university.The cost and demand schedules are: $$\begin{array} { | c | c | c | c | c | } \hline \text { Sold per Day } & \begin{array} { c } \text { Price per } \\\text { Meal }\end{array} & \begin{array} { c } \text { Total } \\\text { Fixed Cost }\end{array} & \begin{array} { c } \text { Total } \\\text { Variable Cost }\end{array} & \begin{array} { c } \text { Total } \\\text { Revenue }\end{array} \\\hline 0 & \$ 3.50 & \$ 150 & \$ 0 & \$ 0 \\\hline 100 & \$ 3.25 & \$ 150 & \$ 300 & \$ 325 \\\hline 200 & \$ 3.00 & \$ 150 & \$ 500 & \$ 600 \\\hline 300 & \$ 275 & \$ 150 & \$ 650 & \$ 825 \\\hline 400 & \$ 250 & \$ 150 & \$ 750 & \$ 1000 \\\hline 500 & \$ 225 & \$ 150 & \$ 830 & \$ 1125 \\\hline 600 & \$ 200 & \$ 150 & \$ 905 & \$ 1200 \\\hline 700 & \$ 1.75 & \$ 150 & \$ 995 & \$ 1225 \\\hline\end{array}$$

-Refer to Table 10- 2.For a single- price monopolist,the profit- maximizing price and number of meals per day is

A)600 meals at $2.00 per meal.
B)700 meals at $1.75 per meal.
C)300 meals at $2.75 per meal.
D)400 meals at $2.50 per meal.
E)500 meals at $2.25 per meal.

Question 13

The main argument of Joseph Schumpeter's idea of "creative destruction" is that

A)monopolies create profits for themselves at the expense of the destruction of consumer surplus.
B)the existence of monopolies leads to destruction of the environment.
C)perfectly competitive industries are characterized by more productive innovation and productivity growth than monopolistic industries,which Schumpeter regarded as destructive.
D)monopoly profits lead to innovation in an effort to sustain those profits.
E)short- run profits created by the existence of monopolies will lead to antitrust legislation,which will force the fragmentation of monopolies into competitive industries.

Question 14

FIGURE 10- 4 Suppose a monopolist faces the demand curve and cost curves shown below.

Refer to Figure 10- 4.If the single- price monopolist is producing at the profit- maximizing level of output,the total cost is represented by the area

A)0P1dQ1.
B)0P4aQ0.
C)0P2bQ0.
D)0P0gQ5.
E)0P3cQ3.

Question 15

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
Chapter 16          Market Failures and Government Intervention
B)0.
C)between Q2 and Q4.
D)greater than zero,but less than Q1.
E)greater than zero,but less than Q2.

Question 16

One similarity between a monopolist and a perfectly competitive firm is that both

A)are large relative to their markets.
B)may have similarly shaped cost curves.
C)need to know the shape of the market demand curve.
D)can make economic profits in the long run.
E)choose the price at which to sell their product.

Question 17

Which of the following is probably NOT an example of price discrimination?

A)Train fares that are less expensive for weekend travel than weekday travel.
B)A theatre charging children under 12 less for a movie ticket than it charges an adult.
C)A doctor charging for his services according to the income of his patients.
D)Universities charging out- of- province students higher tuition fees.
E)A supermarket charging more for strawberries in December than in June.

Question 18

Suppose that a single- price monopolist knows the following information: $\begin{array}{|l|l|l|l|l|l|l|l|}\hline \text { Price } & \text { Quantity } & \text { TR } & \text { MR } & \text { Fixed Cost } & \text { TC } & \text { ATC } & \text { MC } \\\hline \$ 5.00 & 2000 & & \$ 4.00 & \$ 2000 & & \$ 5.00 & \$ 3.00 \\\hline\end{array}$ The monopolist could maximize profits in the short run by

A)lowering price and leaving output unchanged.
B)shutting down.
C)staying at the current price and output.
D)raising price and lowering output.
E)lowering price and increasing output.

Question 19

Natural barriers to firms to entering an industry include

A)large economies of scale in the industry.
B)increasing- cost production.
C)a government- awarded franchise.
D)control or ownership of the entire supply of an essential raw material.
E)a patent which allows production by only the patent holder.

Question 20

Consider the following AR and MR curves for a single- price monopolist.
FIGURE 10- 2
If a single- price monopolist sets price where the price elasticity of demand exactly equals 1,its

A)marginal revenue is always positive.
B)total revenue is rising,although marginal revenue is falling.
C)total revenue is at its maximum.
D)total profits are at a maximum.
E)total revenue is falling.

Question 21

FIGURE 10- 4 Suppose a monopolist faces the demand curve and cost curves shown below.

Refer to Figure 10- 4.If the monopolist is practicing perfect price discrimination and is maximizing its profits,the consumer surplus is represented by the area

A)P5P4a.
B)P5P0c.
C)P5P2e.
D)P5P3c.
E)There is no consumer surplus in this case.

Question 22

The diagram below shows total revenue for a single- price monopolist.
FIGURE 10- 3
Refer to Figure 10- 3.The profit- maximizing output for this single- price monopolist is

A)Q1
B)Q2.
C)Q3.
D)Q4.
E)not determinable from the diagram.

Question 23

Which of the following statements about single- price monopolists is correct?

A)The average revenue curve lies above the demand curve.
B)AR is greater than MR.
C)Price elasticity of demand will be equal to one if the firm is profit- maximizing.
D)Price equals marginal cost at the profit- maximizing level of output.
E)The profit- maximizing level of output is the same as the total revenue- maximizing level of output.

Question 24

The diagram below shows a pharmaceutical firm's demand curve and marginal cost and marginal revenue curves for a new heart medication for which the firm holds a 20- year patent on its production.
FIGURE 10- 5
Refer to Figure 10- 5.Suppose this pharmaceutical firm is charging a single price for its drug and is maximizing its profits.If it then begins to perfectly price discriminate among its buyers it will

A)reduce its producer surplus by areas C+F+H.
B)no longer be equating MR and MC.
C)capture consumer surplus equal to areas D+E+C+F+H.
D)decrease its total output.
E)cause a loss of economic surplus to society as a whole.

Question 25

In November 2012,there was some discussion of several south- Asian countries joining together to restrict the supply of rice to the world market.Between them,these countries' exports of rice account for 40% of the total global trade.What would they be trying to accomplish?

A)They are attempting to form a cartel,jointly restrict output,and increase the world price of rice.
B)They are attempting to form a cartel,drive other producers out of the world market and then increase their output of rice.
C)They are attempting to form a cartel,increase their joint output,and control a larger percentage of the total global trade.
D)They are attempting to act as a bloc to restrict entry of new producers to the world market,and thereby protect their joint profits.
E)They are attempting to price discriminate between consumers of their exported rice,thereby increasing their share of the global trade and increasing their joint profits.

Question 26

Suppose the technology of production is such that the typical firm's minimum efficient scale is 1400 units per week at an average long- run cost of $9 per unit.If the total quantity demanded in this market at a price of $9 per unit is 22 million units per week,the likely result will be

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

Question 27

TABLE 10- 2 Your food- services company has been named as the sole provider of meals at a small university.The cost and demand schedules are: $$\begin{array} { | c | c | c | c | c | } \hline \text { Sold per Day } & \begin{array} { c } \text { Price per } \\\text { Meal }\end{array} & \begin{array} { c } \text { Total } \\\text { Fixed Cost }\end{array} & \begin{array} { c } \text { Total } \\\text { Variable Cost }\end{array} & \begin{array} { c } \text { Total } \\\text { Revenue }\end{array} \\\hline 0 & \$ 3.50 & \$ 150 & \$ 0 & \$ 0 \\\hline 100 & \$ 3.25 & \$ 150 & \$ 300 & \$ 325 \\\hline 200 & \$ 3.00 & \$ 150 & \$ 500 & \$ 600 \\\hline 300 & \$ 275 & \$ 150 & \$ 650 & \$ 825 \\\hline 400 & \$ 250 & \$ 150 & \$ 750 & \$ 1000 \\\hline 500 & \$ 225 & \$ 150 & \$ 830 & \$ 1125 \\\hline 600 & \$ 200 & \$ 150 & \$ 905 & \$ 1200 \\\hline 700 & \$ 1.75 & \$ 150 & \$ 995 & \$ 1225 \\\hline\end{array}$$

-Refer to Table 10- 2.The marginal cost between 100 and 200 meals per day is

A)$2.00.
B)$0.
C)$1.00.
D)$3.00.
E)$1.50.

Question 28

FIGURE 10- 4 Suppose a monopolist faces the demand curve and cost curves shown below.

The average revenue curve for a single- price monopolist

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

Question 29

FIGURE 10- 4 Suppose a monopolist faces the demand curve and cost curves shown below.

Refer to Figure 10- 4.The average per unit profit earned by this profit- maximizing single- price monopolist is

A)P4 - P3.
B)P3 - P2.
C)P4 - P0.
D)P4 - P1.
E)P4 - P2.

Question 30

FIGURE 10- 4 Suppose a monopolist faces the demand curve and cost curves shown below.

Refer to Figure 10- 4.If this single- price monopolist is producing at the profit- maximizing level of output,consumer surplus is represented by the area

A)P5P2b.
B)P5P1e.
C)P5Q30.
D)P5P0g.
E)P5P4a.

Question 31

Consider the following AR and MR curves for a single- price monopolist.
FIGURE 10- 2
If a monopolist is practicing perfect price discrimination,then the following equation is true:

A)AR = ATC at the profit- maximizing level of output.
B)MC = 1/2 MR at the profit- maximizing level of output.
C)MR = P for all units.
D)MR = 1/2 P for any unit.
E)P = AVC at the profit- maximizing level of output.

Question 32

Which one of the following is a natural barrier to firms entering an industry?

A)decreasing returns to scale
B)a positively sloped LRAC curve over the whole range of output
C)a negatively sloped LRAC curve over the whole range of output
D)licensing and patent restrictions
E)threats of punitive price- cutting by existing producers

Question 33

One of the reasons cartels are considered unstable is that

A)it is inefficient to manage individual firms collectively.
B)consumers seek out substitutes to the cartel product.
C)there are wide fluctuations in price as cartel members vary their output.
D)individual members of the cartel have an incentive to violate the cartel agreement.
E)member firms reduce their investment,thereby becoming uncompetitive over time.

Question 34

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

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

Question 35

Consider the following AR and MR curves for a single- price monopolist.
FIGURE 10- 2
Refer to Figure 10- 2.If marginal costs were zero,the profit- maximizing output for this single- price monopolist would be
Chapter 17          The Economics of Environmental Protection
B)Q1.
C)Q2.
D)Q3.
E)Q4.

Question 36

TABLE 10- 2 Your food- services company has been named as the sole provider of meals at a small university.The cost and demand schedules are: $$\begin{array} { | c | c | c | c | c | } \hline \text { Sold per Day } & \begin{array} { c } \text { Price per } \\\text { Meal }\end{array} & \begin{array} { c } \text { Total } \\\text { Fixed Cost }\end{array} & \begin{array} { c } \text { Total } \\\text { Variable Cost }\end{array} & \begin{array} { c } \text { Total } \\\text { Revenue }\end{array} \\\hline 0 & \$ 3.50 & \$ 150 & \$ 0 & \$ 0 \\\hline 100 & \$ 3.25 & \$ 150 & \$ 300 & \$ 325 \\\hline 200 & \$ 3.00 & \$ 150 & \$ 500 & \$ 600 \\\hline 300 & \$ 275 & \$ 150 & \$ 650 & \$ 825 \\\hline 400 & \$ 250 & \$ 150 & \$ 750 & \$ 1000 \\\hline 500 & \$ 225 & \$ 150 & \$ 830 & \$ 1125 \\\hline 600 & \$ 200 & \$ 150 & \$ 905 & \$ 1200 \\\hline 700 & \$ 1.75 & \$ 150 & \$ 995 & \$ 1225 \\\hline\end{array}$$

-Suppose the technology of an industry is such that the typical firm's 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

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

Question 37

TABLE 10- 2 Your food- services company has been named as the sole provider of meals at a small university.The cost and demand schedules are: $$\begin{array} { | c | c | c | c | c | } \hline \text { Sold per Day } & \begin{array} { c } \text { Price per } \\\text { Meal }\end{array} & \begin{array} { c } \text { Total } \\\text { Fixed Cost }\end{array} & \begin{array} { c } \text { Total } \\\text { Variable Cost }\end{array} & \begin{array} { c } \text { Total } \\\text { Revenue }\end{array} \\\hline 0 & \$ 3.50 & \$ 150 & \$ 0 & \$ 0 \\\hline 100 & \$ 3.25 & \$ 150 & \$ 300 & \$ 325 \\\hline 200 & \$ 3.00 & \$ 150 & \$ 500 & \$ 600 \\\hline 300 & \$ 275 & \$ 150 & \$ 650 & \$ 825 \\\hline 400 & \$ 250 & \$ 150 & \$ 750 & \$ 1000 \\\hline 500 & \$ 225 & \$ 150 & \$ 830 & \$ 1125 \\\hline 600 & \$ 200 & \$ 150 & \$ 905 & \$ 1200 \\\hline 700 & \$ 1.75 & \$ 150 & \$ 995 & \$ 1225 \\\hline\end{array}$$

-Refer to Table 10- 2.Assuming the firm is a single- price monopolist,the marginal revenue at 200 meals per day is

A)$0.
B)$2.25.
C)$2.75.
D)$3.25.
E)$1.75.

Question 38

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

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

Question 39

TABLE 10- 1 $$\begin{array} { | l | c | } \hline \text { Price } & \begin{array} { c } \text { Quantity } \\\text { Demanded }\end{array} \\\hline \$ 8 & 5 \\\hline \$ 7 & 6 \\\hline \$ 6 & 7 \\\hline \$ 5 & 8 \\\hline \$ 4 & 9 \\\hline \$ 3 & 10 \\\hline \$ 2 & 11 \\\hline\end{array}$$

-Refer to Table 10- 1.For a single- price monopolist,the marginal revenue associated with increasing sales from 5 to 6 units is

A)- 4.
B)- 2.
C)0.
D)2.
E)4.

Question 40

FIGURE 10- 4 Suppose a monopolist faces the demand curve and cost curves shown below.

A single- price monopolist is currently producing an output level where P = $320,MR = $260,ATC = $280,and MC = $200.In order to maximize profits,this monopolist should

A)decrease production and increase price.
B)increase production and reduce price
C)There is insufficient information to make a recommendation.
D)shut down.
E)not change the output level because the firm is currently at the profit- maximizing output level.

Question 41

With regard to price discrimination,we can generally say that a monopolist practicing perfect price discrimination _ a single- price monopolist in the same market.

A)generates more consumer surplus than
B)has the same effects on consumer welfare as
C)generates a more efficient outcome for society as a whole compared to
D)produces the same output level and charges the same price as
E)produces a lower level of output compared to

Question 42

A monopolist faces a straight- line demand curve and is currently producing an output level of 2000 units receiving $10 000 in total revenue.At an output of 1000 units the marginal revenue for this firm would be

A)$10.00
B)$5.00.
C)$2.50.
D)0.
E)Impossible to tell with the given information.

Question 43

Suppose that a single- price monopolist knows the following information: $\begin{array}{|l|l|l|l|l|l|l|l|}\hline \text { Price } & \text { Quantity } & \text { TR } & \text { MR } & \text { Fixed Cost } & \text { TC } & \text { ATC } & \text { MC } \\\hline \$ 9.00 & 1500 & & \$ 4.00 & \$ 7000 & & \$ 7.00 & \$ 5.00 \\\hline\end{array}$ The total profit being earned by this firm at the current level of output is

A)$1500.
B)$6500.
C)$13 500.
D)$10 500.
E)$3000.

Question 44

The diagram below shows total revenue for a single- price monopolist.
FIGURE 10- 3
A monopolist will be earning positive economic profits

A)whenever marginal revenue is positive.
B)whenever marginal revenue equals marginal cost.
C)when price exceeds average total cost.
D)at all times,since it controls the market.
E)when price equals marginal cost.

Question 45

Suppose you go to a retailer's 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,can't be bothered.You are revealing to the store that

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

Question 46

The figure below shows the demand schedule and demand curve for a product produced by a single- price monopolist.
$\begin{array}{ll}\text { Price (\$) } & \begin{array}{l}\text { Quantity } \\\text { Demanded }\end{array} \\\hline n & 5 \\7 & 6 \\6 & 7 \\5 & 8 \\4 & 9 \\3 & 10 \\2 & 11\end{array}$
FIGURE 10- 1

-Refer to Figure 10- 1.Suppose this single- price monopolist is initially selling 5 units at $8 each and then reduces the price of the product to $6.By making this change,the firm is giving up revenue of on the original number of units sold and gaining revenue of _ on the additional units sold.Its marginal revenue is therefore .(All figures are dollars.)

A)10; 12; 2
B)5; 7; - 2
C)14; 14; 0
D)38; 40; 2
E)8; 6; 2

Question 47

TABLE 10- 1 $$\begin{array} { | l | c | } \hline \text { Price } & \begin{array} { c } \text { Quantity } \\\text { Demanded }\end{array} \\\hline \$ 8 & 5 \\\hline \$ 7 & 6 \\\hline \$ 6 & 7 \\\hline \$ 5 & 8 \\\hline \$ 4 & 9 \\\hline \$ 3 & 10 \\\hline \$ 2 & 11 \\\hline\end{array}$$

-Refer to Table 10- 1,which displays the demand schedule for a single- price monopolist.At what level of demand is the price elasticity of demand equal to 1?

A)between 6 and 7 units
B)between 7 and 8 units
C)between 8 and 9 units
D)between 9 and 10 units
E)between 10 and 11 units

Question 48

TABLE 10- 1 $$\begin{array} { | l | c | } \hline \text { Price } & \begin{array} { c } \text { Quantity } \\\text { Demanded }\end{array} \\\hline \$ 8 & 5 \\\hline \$ 7 & 6 \\\hline \$ 6 & 7 \\\hline \$ 5 & 8 \\\hline \$ 4 & 9 \\\hline \$ 3 & 10 \\\hline \$ 2 & 11 \\\hline\end{array}$$

-Refer to Table 10- 1,which displays the demand schedule for a single- price monopolist.Which of the following statements about price elasticity of demand is true?

A)demand is elastic at a price of $5
B)demand is inelastic at a price of $8
C)demand is unit- elastic at a price of $4
D)demand is elastic at a price of $8
E)demand is elastic at a price of $3

Question 49

FIGURE 10- 4 Suppose a monopolist faces the demand curve and cost curves shown below.

A monopoly is distinguished from a firm operating under any other market structure in the following way: the monopoly

A)does not produce at a profit- maximizing level of output.
B)faces a demand curve which is identical to the market demand curve.
C)can choose its output level.
D)charges a price higher than its average revenue.
E)can choose its level of cost.

Question 50

TABLE 10- 2 Your food- services company has been named as the sole provider of meals at a small university.The cost and demand schedules are: $$\begin{array} { | c | c | c | c | c | } \hline \text { Sold per Day } & \begin{array} { c } \text { Price per } \\\text { Meal }\end{array} & \begin{array} { c } \text { Total } \\\text { Fixed Cost }\end{array} & \begin{array} { c } \text { Total } \\\text { Variable Cost }\end{array} & \begin{array} { c } \text { Total } \\\text { Revenue }\end{array} \\\hline 0 & \$ 3.50 & \$ 150 & \$ 0 & \$ 0 \\\hline 100 & \$ 3.25 & \$ 150 & \$ 300 & \$ 325 \\\hline 200 & \$ 3.00 & \$ 150 & \$ 500 & \$ 600 \\\hline 300 & \$ 275 & \$ 150 & \$ 650 & \$ 825 \\\hline 400 & \$ 250 & \$ 150 & \$ 750 & \$ 1000 \\\hline 500 & \$ 225 & \$ 150 & \$ 830 & \$ 1125 \\\hline 600 & \$ 200 & \$ 150 & \$ 905 & \$ 1200 \\\hline 700 & \$ 1.75 & \$ 150 & \$ 995 & \$ 1225 \\\hline\end{array}$$

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

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

Question 51

The diagram below shows total revenue for a single- price monopolist.
FIGURE 10- 3
Consider a monopolist that is able to distinguish between two distinct market segments,A and B,for its product.Marginal cost is constant at $18 for each unit produced.The firm is currently selling its output at a single price and allocating its output across segments such that marginal revenue in segment A is $25 and marginal revenue in segment B is $15.Is this firm maximizing its profit?

A)Yes,because since marginal cost is constant,the firm must set a single price.
B)No,this firm can increase its profits by price discriminating across the two market segments.
C)Yes,because it has set a price such that MC is between the MRs of the two market segments.
D)No,because it is only possible to equate MR and MC when there is a single MR curve.

Question 52

Suppose that a single- price monopolist knows the following information: $\begin{array}{|l|l|l|l|l|l|l|l|}\hline \text { Price } & \text { Quantity } & \text { TR } & \text { MR } & \text { Fixed Cost } & \text { TC } & \text { ATC } & \text { MC } \\\hline \$ 10.00 & 1500 & & \$ 7.00 & \$ 6000 & & \$ 5.00 & \$ 5.00 \\\hline\end{array}$ The total profit being earned by this firm at the current level of output is which the maximum profit possible.

A)$105 000; is
B)$97 500; is not
C)$3000; is not
D)$7500; is not
E)$15 000; is

Question 53

The marginal revenue curve facing a single- price monopolist

A)lies below the average revenue curve.
B)is the same as the demand curve facing the monopolist.
C)shows the change in the profit for the firm.
D)at first falls to a minimum and then rises as output is increased.
E)is the same as the average revenue curve facing the monopolist.

Question 54

At the profit- maximizing level of output for a single- price monopolist,price

A)equals marginal revenue.
B)exceeds marginal cost.
C)equals marginal cost.
D)is below marginal revenue.
E)always exceeds average total cost.

Question 55

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

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

Question 56

The diagram below shows total revenue for a single- price monopolist.
FIGURE 10- 3
Refer to Figure 10- 3.The firm's marginal revenue at Q1 is

A)positive and rising.
B)zero.
C)negative and falling.
D)positive but falling.
E)not determinable from the diagram.

Question 57

The figure below shows the demand schedule and demand curve for a product produced by a single- price monopolist.
$\begin{array}{ll}\text { Price (\$) } & \begin{array}{l}\text { Quantity } \\\text { Demanded }\end{array} \\\hline n & 5 \\7 & 6 \\6 & 7 \\5 & 8 \\4 & 9 \\3 & 10 \\2 & 11\end{array}$
FIGURE 10- 1

-If a single- price monopolist's price equals marginal cost,the firm

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

Question 58

TABLE 10- 2 Your food- services company has been named as the sole provider of meals at a small university.The cost and demand schedules are: $$\begin{array} { | c | c | c | c | c | } \hline \text { Sold per Day } & \begin{array} { c } \text { Price per } \\\text { Meal }\end{array} & \begin{array} { c } \text { Total } \\\text { Fixed Cost }\end{array} & \begin{array} { c } \text { Total } \\\text { Variable Cost }\end{array} & \begin{array} { c } \text { Total } \\\text { Revenue }\end{array} \\\hline 0 & \$ 3.50 & \$ 150 & \$ 0 & \$ 0 \\\hline 100 & \$ 3.25 & \$ 150 & \$ 300 & \$ 325 \\\hline 200 & \$ 3.00 & \$ 150 & \$ 500 & \$ 600 \\\hline 300 & \$ 275 & \$ 150 & \$ 650 & \$ 825 \\\hline 400 & \$ 250 & \$ 150 & \$ 750 & \$ 1000 \\\hline 500 & \$ 225 & \$ 150 & \$ 830 & \$ 1125 \\\hline 600 & \$ 200 & \$ 150 & \$ 905 & \$ 1200 \\\hline 700 & \$ 1.75 & \$ 150 & \$ 995 & \$ 1225 \\\hline\end{array}$$

-Refer to Table 10- 2,and suppose that the firm is a single- price monopolist.At the profit- maximizing level of output,the price elasticity of demand is

A)less than one.
B)greater than one.
C)one.
D)infinite.
E)impossible to know with the available information.

Question 59

A firm is best described as a natural monopoly if

A)its MC curve is downward sloping.
B)it can supply the entire market while minimizing its average costs.
C)there are no competing firms.
D)its ATC curve is upward sloping.
E)it holds an exclusive charter from the government.

Question 60

TABLE 10- 1 $$\begin{array} { | l | c | } \hline \text { Price } & \begin{array} { c } \text { Quantity } \\\text { Demanded }\end{array} \\\hline \$ 8 & 5 \\\hline \$ 7 & 6 \\\hline \$ 6 & 7 \\\hline \$ 5 & 8 \\\hline \$ 4 & 9 \\\hline \$ 3 & 10 \\\hline \$ 2 & 11 \\\hline\end{array}$$

-Consider the following statement: "Price discrimination is harmful to society and should not be tolerated under any circumstance." Why is this statement false?

A)Price discrimination leads to higher prices for all consumers and a reduction in consumer surplus.
B)Price discrimination always leads to lower prices and higher quantities.
C)Price discrimination reduces total quantity exchanged and therefore reduces the sum of producer and consumer surplus.
D)Price discrimination can allow for some consumers to be made better off because they are able to buy a product or service that was otherwise unaffordable.
E)Price discrimination violates the Canadian Charter of Rights and Freedoms.

Question 61

TABLE 10- 1 $$\begin{array} { | l | c | } \hline \text { Price } & \begin{array} { c } \text { Quantity } \\\text { Demanded }\end{array} \\\hline \$ 8 & 5 \\\hline \$ 7 & 6 \\\hline \$ 6 & 7 \\\hline \$ 5 & 8 \\\hline \$ 4 & 9 \\\hline \$ 3 & 10 \\\hline \$ 2 & 11 \\\hline\end{array}$$

-Refer to Table 10- 1.For a single- price monopolist producing and selling 9 units,the marginal revenue earned by selling the 9th unit is

A)- 4.
B)- 2.
C)0.
D)2.
E)4.

Question 62

If a competing firm is able to overcome an entry barrier of a monopolized industry,the demand curve of the single firm already in the industry will

A)shift to the left.
B)become less elastic.
C)shift to the left and become more elastic.
D)remain the same in spite of the entry of the other firm.
E)shift to the right.

Question 63

The diagram below shows a pharmaceutical firm's demand curve and marginal cost and marginal revenue curves for a new heart medication for which the firm holds a 20- year patent on its production.
FIGURE 10- 5
If a monopolist is practicing perfect price discrimination,then

A)the producer surplus is zero.
B)demand must be inelastic.
C)consumer surplus is zero.
D)costs are lower than for the non- price- discriminating monopolist.
E)the monopolist is not profit maximizing.

Question 64

If a monopolist is practising perfect price discrimination,we know that

A)the firm is producing a lower output than it would if it were a single- price monopolist.
B)the firm is selling each unit at a different price and capturing all consumer surplus.
C)marginal cost is rising as output rises.
D)the firm is facing a perfectly elastic demand curve.
E)the firm is facing a perfectly inelastic demand curve.

Question 65

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

Question 66

Consider a monopolist that is able to distinguish between two distinct market segments,A and B,for its product.Marginal cost is constant at $100 for each unit produced.The firm is currently selling its output at a single price and allocating its output across segments such that marginal revenue in segment A is $85 and marginal revenue in segment B is $105.How can this firm maximize its profit?

A)increase the output in segments A and B
B)increase the output in segment A and decrease the output in segment B
C)maintain the current output and its allocation across segments
D)decrease the output in segment A and increase the output in segment B
E)decrease the output in segments A and B

Question 67

Suppose that a single- price monopolist knows the following information: $\begin{array}{|l|l|l|l|l|l|l|l|}\hline \text { Price } & \text { Quantity } & \text { TR } & \text { MR } & \text { Fixed Cost } & \text { TC } & \text { ATC } & \text { MC } \\\hline \$ 5.00 & 2000 & & \$ 4.00 & \$ 2000 & & \$ 5.00 & \$ 3.00 \\\hline\end{array}$ The total profit being earned by this firm at the current level of output is

A)0.
B)- $1000.
C)- $2000.
D)$2000.
E)$1000.

Question 68

Consider a monopolist that is able to distinguish between two distinct market segments,A and B,for its product.Marginal cost is constant at $18 for each unit produced.The firm is currently selling its output at a single price and allocating its output across segments such that marginal revenue in segment A is $25 and marginal revenue in segment B is $15.How can this firm maximize its profit?

A)maintain the current output and its allocation across segments
B)increase the output in segment A and decrease the output in segment B
C)increase the output in segments A and B
D)decrease the output in segments A and B
E)decrease the output in segment A and increase the output in segment B

Question 69

If a monopolist's marginal revenue is MR = 12 - 2Q and its marginal cost is MC = 3,then the profit- maximizing quantity is

A)12.
B)6.
C)4.5.
D)4.
E)0.

Question 70

The diagram below shows a pharmaceutical firm's demand curve and marginal cost and marginal revenue curves for a new heart medication for which the firm holds a 20- year patent on its production.
FIGURE 10- 5
Refer to Figure 10- 5.Assume this pharmaceutical firm is practicing perfect price discrimination among its buyers.At its profit- maximizing level of output,consumer surplus is represented by

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

Question 71

Suppose all of the firms in a perfectly competitive industry form a cartel and agree to restrict output,thereby raising the price of the product.Individual Firm A will gain the most from the existence of the cartel if

A)all firms revert back to their competitive outputs.
B)no firms restrict output.
C)all firms,except Firm A,cooperate and restrict output.
D)Firm A restricts output,while the other firms do not.
E)all firms,including A,cooperate and restrict output.

Question 72

Consider a monopolist that is able to distinguish between two distinct market segments,A and B,for its product.Marginal cost is constant at $100 for each unit produced.The firm is currently selling its output at a single price and allocating its output across segments such that marginal revenue in segment A is $85 and marginal revenue in segment B is $105.Is this firm maximizing its profit?

A)No,this firm can increase its profits by price discriminating across the two market segments.
B)No,because it is only possible to equate MR and MC when there is a single MR curve.
C)Yes,because since marginal cost is constant,the firm must set a single price.
D)Yes,because it has set a price such that MC is between the MRs of the two market segments.

Question 73

TABLE 10- 1 $$\begin{array} { | l | c | } \hline \text { Price } & \begin{array} { c } \text { Quantity } \\\text { Demanded }\end{array} \\\hline \$ 8 & 5 \\\hline \$ 7 & 6 \\\hline \$ 6 & 7 \\\hline \$ 5 & 8 \\\hline \$ 4 & 9 \\\hline \$ 3 & 10 \\\hline \$ 2 & 11 \\\hline\end{array}$$

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

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

Question 74

Which of the following products would most easily lend itself to successful price discrimination by a monopolist?

A)transport trucks
B)restaurant meals
C)electricity
D)pianos
E)cellular phones

Question 75

The diagram below shows a pharmaceutical firm's demand curve and marginal cost and marginal revenue curves for a new heart medication for which the firm holds a 20- year patent on its production.
FIGURE 10- 5
Economic profit for a monopolistic firm will equal zero when

A)price equals marginal cost.
B)marginal revenue equals marginal cost.
C)average total cost equals price.
D)marginal revenue equals price.
E)average total cost is minimized.

Question 76

Refer to Figure 10- 4.Suppose this monopolist is practicing perfect price discrimination.How does this differ from the situation where this firm is charging a single price for its product?

A)The firm is restricting output to a level below that of the single- price monopolist,and thereby raises the price of its product and earns higher profits.
B)The firm is producing a smaller quantity,is charging a different price for each unit sold and is earning higher profits.
C)The firm is producing the same quantity,has successfully identified different segments of the market,and is able to capture some of the consumer surplus.
D)The firm is producing the same quantity,but charging a different price for each unit sold and is earning higher profits.
E)The firm is producing a higher quantity,is charging a different price for each unit sold and is earning higher profits.

Question 77

The diagram below shows a pharmaceutical firm's demand curve and marginal cost and marginal revenue curves for a new heart medication for which the firm holds a 20- year patent on its production.
FIGURE 10- 5
Refer to Figure 10- 5.Assume this pharmaceutical firm is practicing perfect price discrimination among its buyers.At its profit- maximizing level of output,it will generate a deadweight loss to society represented by

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

Question 78

The diagram below shows a pharmaceutical firm's demand curve and marginal cost and marginal revenue curves for a new heart medication for which the firm holds a 20- year patent on its production. FIGURE 10- 5
Refer to Figure 10- 5.Assume this pharmaceutical firm charges a single price for its drug.At its profit- maximizing level of output it will produce

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

Question 79

Many clothing retailers allow you to go to their website and print a coupon that you then present for a discounted price on your next purchase in the store.In economics we refer to this as

A)hurdle pricing,a form of price discrimination.
B)a loss- leader,a form of advertising.
C)sales maximization,a form of market segmentation.
D)a created entry barrier,a form of price discrimination.
E)arbitrage,a form of price discrimination.

Question 80

A likely cause of a natural monopoly occurring in some industry is

A)sabotage.
B)charters.
C)licenses.
D)scale economies.
E)patents.