Deck 10: Monopoly, cartels, and Price Discrimination

Question 1

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

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

Answer 1

faces a demand curve which is identical to the market demand curve.

Question 2

Consider a profit-maximizing single-price monopolist that faces a linear demand curve.The firm would not set a price at which demand is inelastic because

A)marginal revenue is zero in that range of output.
B)average revenue is zero in that range of output.
C)the marginal revenue would be negative in that range of output.
D)the average revenue would be negative in that range of output.
E)the marginal revenue and average revenue would be equal in that range of output.

Answer 2

the marginal revenue would be negative in that range of output.

Question 3

The diagram below shows the demand curve facing a single -price monopolist.
FIGURE 10-4
Refer to Figure 10-4.Suppose the firm is currently at point C on the demand curve,selling 300 units at $40 per unit.If the firm moves to point D,the revenue the firm gives up on the units it was already selling is ________and the revenue it gains on the additional units sold is ________.

A)$9000; $9000
B)$12 000; $12 000
C)$3000; 4000
D)$4000; $3000
E)$3000; $3000

Answer 3

$3000; $3000

Question 4

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

Question 5

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)choose the price at which to sell their product.
D)can make economic profits in the long run.
E)need to know the shape of the market demand curve.

Question 6

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

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 7

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

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

Question 8

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 Q2 is

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

Question 9

For a single-price monopolist,marginal revenue falls faster than price (as output rises)because

A)in order to sell additional units,the price must be lowered on all units.
B)profits are maximized when marginal cost equals marginal revenue.
C)the firm has no supply curve.
D)the cost of producing extra units of output increases as production is increased.
E)none of the above - marginal revenue does not fall faster than price.

Question 10

Consider a single-price monopolist that is operating in the inelastic range of its linear demand curve.This firm

A)would be operating where its AR is negative.
B)would have a marginal revenue curve that is negative.
C)would have a marginal revenue that is negative although its total revenues would be at a maximum.
D)could raise its total revenue by lowering its price.
E)would be operating at its profit-maximizing position.

Question 11

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

Question 12

A monopolistic firm faces a downward-sloping demand curve because

A)there are a large number of firms in the industry,all selling the same product.
B)the demand for its product is always inelastic.
C)the market price is affected by the amount sold by a monopolistic firm.
D)marginal revenue is negative throughout the feasible range of output.
E)the monopolistic firm can exploit economies of scale.

Question 13

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

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

Question 14

The diagram below shows the demand curve facing a single -price monopolist.
FIGURE 10-4
Refer to Figure 10-4.What is the firmʹs marginal revenue per unit as it moves from point A to point B on the demand curve?

A)$0
B)$40
C)$50
D)$1000
E)$2000

Question 15

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)less than one.
C)one.
D)greater than one.
E)infinite.

Question 16

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

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

Question 17

If a single-price monopolist sets price where the price elasticity of demand exactly equals 1,its

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

Question 18

The diagram below shows the demand curve facing a single -price monopolist.
FIGURE 10-4
Refer to Figure 10-4.Suppose the firm is currently producing at point A on the demand curve,selling 100 units of output at a price of $60 per unit.If the firm moves to point B,the revenue the firm gives up on the units it was already selling is ________, and the revenue it gains on the additional units sold is ________.

A)$1000; $5000
B)$2000; $5000
C)$5000; $2000
D)$100; $200
E)$100; $500

Question 19

The marginal revenue curve facing a single-price monopolist

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

Question 20

The average revenue curve for a single-price monopolist

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.

Question 21

Monopolistic firms do not have supply curves because

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 22

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

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 23

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 = $260,ATC = $280,and MC = $200.In order to maximize profits,this monopolist should

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

Question 24

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

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

Question 25

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

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

Question 26

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

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 27

A single-price monopolist is currently producing an output level where price equals marginal cost,and profits are positive.In order to maximize profits,this monopolist should

A)produce zero output.
B)increase production and reduce price.
C)decrease production and increase price.
D)not change his output level,because he is currently earning profits.
E)reduce price and let production adjust to the new price.

Question 28

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

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

Question 29

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 30

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 = $20,MR = $13,ATC = $15,and MC = $14.In order to maximize profits,this monopolist should

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

Question 31

The diagram below shows the demand curve facing a single -price monopolist.
FIGURE 10-4
Refer to Figure 10-4.At what level of quantity does the marginal revenue curve for this firm intersect the horizontal axis?

A)0
B)250
C)350
D)500
E)700

Question 32

Consider the following AR and MR curves for a single-price monopolist.
FIGURE 10-2
Refer to Figure 10-2.For this single-price monopolist,the profit-maximizing level of output is

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

Question 33

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

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

Question 34

Economic profit for a monopolistic firm will equal zero when

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

Question 35

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

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 36

The diagram below shows the demand curve facing a single -price monopolist.
FIGURE 10-4
Refer to Figure 10-4.What is the firmʹs marginal revenue per unit as it moves from point C to point D on the demand curve?

A)$0
B)$10
C)$50
D)$100
E)$3000

Question 37

A monopolist will be earning positive economic profits

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

Question 38

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

A)0.
B)Q1.
C)Q2.
D)Q3.
E)Q4.

Question 39

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)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 40

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

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 41

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

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

Question 42

It is common for a cartel to collapse when one or more firms in the cartel

A)exceed its output quota.
B)produce more efficiently than other member firms.
C)is much larger than other cartel members.
D)increase its price above the monopoly price.
E)exit the industry.

Question 43

A cartel can only succeed in the long run

A)with authorization from the government.
B)if there is free entry of new firms.
C)if all firms are experiencing decreasing returns to scale.
D)if the long-run market supply curve is elastic.
E)if member firms cooperate and resist their individual incentives.

Question 44

Natural barriers to firms to entering an industry include

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

Question 45

The main argument of Joseph Schumpeterʹs idea of ʺcreative destructionʺ is that

A)the existence of monopolies leads to destruction of the environment.
B)short-run profits created by the existence of monopolies will lead to antitrust legislation,which will force the fragmentation of monopolies into competitive industries.
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)monopolies create profits for themselves at the expense of the destruction of consumer surplus.

Question 46

Suppose the technology of an industry is such that the typical firmʹs minimum efficient scale is 18 units per day at an average long-run cost of $1600 per unit.If the total quantity demanded at a price of $1750 per unit is 16 units per month,the likely result would be

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

Question 47

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

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

Question 48

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

Question 49

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

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

Question 50

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)threats of punitive price-cutting by existing producers
E)licensing and patent restrictions

Question 51

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

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 52

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

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

Question 53

The cartelization of an industry with a homogeneous product usually means that

A)member firms have agreed to cooperate in reducing costs.
B)member firms have agreed to reduce their joint output.
C)the demand curve facing the industry must be linear.
D)the demand curve facing the industry must be elastic.
E)member firms have agreed to reduce investment.

Question 54

One of the reasons cartels are considered unstable is that

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

Question 55

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

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

Question 56

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 countriesʹ 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,increase their joint output,and control a larger percentage of the total global trade.
B)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.
C)They are attempting to form a cartel,jointly restrict output,and increase the world price of rice.
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 form a cartel,drive other producers out of the world market and then increase their output of rice.

Question 57

A firm is best described as a natural monopoly if

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

Question 58

Suppose the technology of production is such that the typical firmʹs 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 cartel.
B)price discrimination.
C)a natural monopoly.
D)a concentrated oligopoly.
E)a competitive industry.

Question 59

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

Question 60

The two characteristic problems for cartels are

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

Question 61

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

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.

Question 62

Suppose the market for some product can be divided into two segments,each with a linear demand curve.A monopolist can set a different price (but only one price)in each segment.The profit -maximizing price discrimination across these two market segments will lead to

A)higher output with average revenue higher than the best single price.
B)lower output with total revenue higher than the single best price.
C)lower output with a higher average revenue than the best single price.
D)higher output with average revenue lower than the best single price.
E)the same output but higher average revenue than the best single price.

Question 63

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 has no fixed costs and is practicing perfect price discrimination among its buyers.At its profit-maximizing level of output,it will generate a total profit represented by

A)areas B + C + F + G + H + I.
B)areas C + F + H.
C)areas G + I.
D)the area below the demand curve minus the area below the MC curve,up to Q 1.
E)It is not possible to determine with the information provided.

Question 64

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

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

Question 65

One reason airlines charge a higher price to business travellers is that

A)business travellers donʹt profit maximize.
B)government sets the price policies.
C)business travellers have a relatively higher demand elasticity than other travellers.
D)business travellers have a relatively lower demand elasticity than other travellers.
E)they are thereby able to minimize costs.

Question 66

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

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

Question 67

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

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 68

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

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 69

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

Question 70

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 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 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 71

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

Question 72

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 total profit represented by

A)the sum of areas A through K.
B)areas A + B + C + F + G.
C)areas B + C + F + G + H + I.
D)areas D + E.
E)It is not possible to determine with the information provided.

Question 73

If a monopolist is practicing perfect price discrimination,then the following equation is true:

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

Question 74

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

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

Question 75

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

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 76

If a monopolist is practicing perfect price discrimination,then

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

Question 77

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

Question 78

Which of the following statements about a monopoly practicing perfect price discrimination is correct?

A)The profit-maximizing criterion is MR = P,the same as for perfect competition.
B)The demand curve is also the marginal-revenue curve.
C)It will charge higher prices in those market segments with more elastic demand.
D)The output will always be less than that produced by a single-price monopolist.
E)Total costs will be lower than that of a single-price monopolist.

Question 79

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

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

Question 80

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

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.