Deck 10: Monopoly, Cartels, and Price Discrimination

Question 1

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

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

Answer 1

E

Question 2

The diagram below shows a pharmaceutical firm's demand curve and marginal cost curve 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) Q0 units and charge a price of p0.
B) Q1 units and charge a price of p1.
C) Q0 units and charge a price of p2.
D) Q1 units and charge a price greater than its average total variable cost.
E) Q0 units and charge the perfectly competitive price.

Answer 2

A

Question 3

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

-Refer to Figure 10- 1. What is the lowest level of output at which marginal revenue becomes negative?

A) 9th unit
B) 8th unit
C) 5th unit
D) 6th unit
E) 7th unit

Answer 3

7th unit

Question 4

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

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

Question 5

One of the reasons cartels are considered unstable is that

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

Question 6

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

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

Question 7

Suppose a monopolist faces the demand curve and cost curves shown below. FIGURE 10- 4
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) 0P0fQ0.
B) P4abP2.
C) P3ceP2.
D) 0P2bQ0.
E) 0P4aQ0.

Question 8

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) P = AVC at the profit- maximizing level of output.
D) MC = 1/2 MR at the profit- maximizing level of output.
E) AR = ATC at the profit- maximizing level of output.

Question 9

Which one of the following is a natural barrier to entry?

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

Question 10

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

-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 11

Suppose a monopolist faces the demand curve and cost curves shown below. FIGURE 10- 4
Refer to Figure 10- 4. A profit- maximizing single- price monopolist would charge the price

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

Question 12

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 monopolist could maximize profits by

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

Question 13

Suppose a monopolist faces the demand curve and cost curves shown below. FIGURE 10- 4
Refer to Figure 10- 4. If the monopolist is practicing perfect price discrimination and is maximizing its profits, the total revenue is represented by the area

A) 0P2bQ0.
B) 0P5cQ2.
C) 0P3cQ2.
D) 0P4aQ0.
E) 0P1dQ1.

Question 14

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

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

Question 15

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

Question 16

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

Question 17

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

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

Question 18

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

Question 19

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

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

Question 20

A monopolistic firm faces a downward- sloping demand curve because

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

Question 21

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

Question 22

Your food- services company has been named as the sole provider of meals at a small university. The cost and demand schedules are: $$\begin{array}{l}\begin{array} { | c | c | c | c | c | } \hline \text { Sold per Day } & \text { Price per Meal } & \begin{array} { c } \text { Total } \\\text { Fixed Cost }\end{array} & \begin{array} { c } \text { Total } \\\text { Variable Cost }\end{array} & \text { Total Revenue } \\\hline 0 & \$ 3.50 & \$ 150 & 0 & 0 \\\hline 100 & \$ 3.25 & \$ 150 & \$ 300 & \$ 325 \\\hline 200 & \$ 3.00 & \$ 150 & \$ 500 & \$ 600 \\\hline 300 & \$ 2.75 & \$ 150 & \$ 650 & \$ 825 \\\hline 400 & \$ 2.50 & \$ 150 & \$ 750 & \$ 1000 \\\hline 500 & \$ 2.25 & \$ 150 & \$ 830 & \$ 1125 \\\hline 600 & \$ 2.00 & \$ 150 & \$ 905 & \$ 1200 \\\hline 700 & \$ 1.75 & \$ 150 & \$ 995 & \$ 1225 \\\hline\end{array}\\\text { TABLE } 10 - 2\end{array}$$

-Refer to Table 10- 2, and suppose that the firm is a single- price monopolist. If the firm provided 700 meals per day, total daily profits would be

A) - $60.
B) $80.
C) $150.
D) $230.
E) impossible to calculate given the information provided.

Question 23

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

Question 24

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

Question 25

A cartel can only succeed in the long run

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

Question 26

Suppose a monopolist faces the demand curve and cost curves shown below. FIGURE 10- 4
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) P5P2e.
B) P5P0c.
C) P5P4a.
D) P5P3c.
E) zero -- there is no consumer surplus in this case.

Question 27

The diagram below shows a pharmaceutical firm's demand curve and marginal cost curve 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) Q0 units and charge a price of p0 on all units.
B) Q1 units and charge a price of p1 on the last unit sold.
C) Q0 units and charge a price of p0 on the last unit sold.
D) Q1 units and charge a price of p1 on all units.
E) - it is not possible to determine with the information provided.

Question 28

Consider the following AR and MR curves for a single- price monopolist. FIGURE 10- 2
Refer to Figure 10- 2. For a 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 29

The diagram below shows a pharmaceutical firm's demand curve and marginal cost curve 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) - there is no deadweight loss generated.
B) areas H+I.
C) areas I+J+K.
D) areas H+I+J+K.
E) - it is not possible to determine with the information provided.

Question 30

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 facing a perfectly inelastic demand curve.
C) marginal cost is rising as output rises.
D) the firm is selling each unit at a different price and capturing all consumer surplus.
E) the firm is facing a perfectly elastic demand curve.

Question 31

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) produces the same output level and charges the same price as
D) produces a lower level of output compared to
E) generates a more efficient outcome for society as a whole compared to

Question 32

For a single- price monopolist, the revenue- maximizing level of output occurs at a level of output such that

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

Question 33

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

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

Question 34

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

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

Question 35

Natural barriers to entry include

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

Question 36

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

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

Question 37

If a monopolist's 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 38

Your food- services company has been named as the sole provider of meals at a small university. The cost and demand schedules are: $$\begin{array}{l}\begin{array} { | c | c | c | c | c | } \hline \text { Sold per Day } & \text { Price per Meal } & \begin{array} { c } \text { Total } \\\text { Fixed Cost }\end{array} & \begin{array} { c } \text { Total } \\\text { Variable Cost }\end{array} & \text { Total Revenue } \\\hline 0 & \$ 3.50 & \$ 150 & 0 & 0 \\\hline 100 & \$ 3.25 & \$ 150 & \$ 300 & \$ 325 \\\hline 200 & \$ 3.00 & \$ 150 & \$ 500 & \$ 600 \\\hline 300 & \$ 2.75 & \$ 150 & \$ 650 & \$ 825 \\\hline 400 & \$ 2.50 & \$ 150 & \$ 750 & \$ 1000 \\\hline 500 & \$ 2.25 & \$ 150 & \$ 830 & \$ 1125 \\\hline 600 & \$ 2.00 & \$ 150 & \$ 905 & \$ 1200 \\\hline 700 & \$ 1.75 & \$ 150 & \$ 995 & \$ 1225 \\\hline\end{array}\\\text { TABLE } 10 - 2\end{array}$$

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

Question 39

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

-Refer to Figure 10- 1. At what level of output is total revenue maximized for this monopolist?

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

Question 40

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

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

Question 41

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

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

Question 42

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

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

Question 43

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

A) government sets the price policies.
B) they are thereby able to minimize costs.
C) business travellers don't profit maximize.
D) business travellers have a relatively lower demand elasticity than other travellers.
E) business travellers have a relatively higher demand elasticity than other travellers.

Question 44

The figure below shows the demand schedule and demand curve for a product produced by a single- price monopolist. $\begin{array}{ll}&\text { Quantity }\\\text { Price (\$) }&\text { Demanded }\\8 & 5 \\7 & 6 \\6 & 7 \\5 & 8 \\4 & 9 \\3 & 10 \\2 & 11\end{array}$
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
And gaining revenue of _. Its marginal revenue is therefore . (All figures are dollars.)

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

Question 45

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

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

Question 46

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

Question 47

One similarity between a monopoly and a firm in perfect competition is that both

A) face the entire market demand curve.
B) are profit maximizers.
C) set their selling price.
D) have market power.
E) choose their output independent of demand.

Question 48

Your food- services company has been named as the sole provider of meals at a small university. The cost and demand schedules are: $$\begin{array}{l}\begin{array} { | c | c | c | c | c | } \hline \text { Sold per Day } & \text { Price per Meal } & \begin{array} { c } \text { Total } \\\text { Fixed Cost }\end{array} & \begin{array} { c } \text { Total } \\\text { Variable Cost }\end{array} & \text { Total Revenue } \\\hline 0 & \$ 3.50 & \$ 150 & 0 & 0 \\\hline 100 & \$ 3.25 & \$ 150 & \$ 300 & \$ 325 \\\hline 200 & \$ 3.00 & \$ 150 & \$ 500 & \$ 600 \\\hline 300 & \$ 2.75 & \$ 150 & \$ 650 & \$ 825 \\\hline 400 & \$ 2.50 & \$ 150 & \$ 750 & \$ 1000 \\\hline 500 & \$ 2.25 & \$ 150 & \$ 830 & \$ 1125 \\\hline 600 & \$ 2.00 & \$ 150 & \$ 905 & \$ 1200 \\\hline 700 & \$ 1.75 & \$ 150 & \$ 995 & \$ 1225 \\\hline\end{array}\\\text { TABLE } 10 - 2\end{array}$$

-Refer to Table 10- 2, and suppose that the firm is a single- price monopolist. At the profit- maximizing level of output, the firm's total profit per day will be

A) $75.
B) $100.
C) $145.
D) $150.
E) $295.

Question 49

The diagram below shows a pharmaceutical firm's demand curve and marginal cost curve 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+F+H.
B) areas D+E.
C) - there is no consumer surplus.
D) areas C+D+E+F+H.
E) - it is not possible to determine with the information provided.

Question 50

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

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

Question 51

Suppose a monopolist faces the demand curve and cost curves shown below. FIGURE 10- 4
Refer to Figure 10- 4. This single- price monopolist would maximize total revenue by producing the quantity _ .

A) Q5
B) Q3
C) Q4
D) Q1
E) Q2

Question 52

Your food- services company has been named as the sole provider of meals at a small university. The cost and demand schedules are: $$\begin{array}{l}\begin{array} { | c | c | c | c | c | } \hline \text { Sold per Day } & \text { Price per Meal } & \begin{array} { c } \text { Total } \\\text { Fixed Cost }\end{array} & \begin{array} { c } \text { Total } \\\text { Variable Cost }\end{array} & \text { Total Revenue } \\\hline 0 & \$ 3.50 & \$ 150 & 0 & 0 \\\hline 100 & \$ 3.25 & \$ 150 & \$ 300 & \$ 325 \\\hline 200 & \$ 3.00 & \$ 150 & \$ 500 & \$ 600 \\\hline 300 & \$ 2.75 & \$ 150 & \$ 650 & \$ 825 \\\hline 400 & \$ 2.50 & \$ 150 & \$ 750 & \$ 1000 \\\hline 500 & \$ 2.25 & \$ 150 & \$ 830 & \$ 1125 \\\hline 600 & \$ 2.00 & \$ 150 & \$ 905 & \$ 1200 \\\hline 700 & \$ 1.75 & \$ 150 & \$ 995 & \$ 1225 \\\hline\end{array}\\\text { TABLE } 10 - 2\end{array}$$

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

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

Question 53

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

-Refer to Figure 10- 1. Suppose this single- price monopolist is initially selling 9 units at $4 each and then reduces the price of the product to $3. By making this change, the firm is giving up revenue of
And gaining revenue of _. Its marginal revenue is therefore . (All figures are dollars)

A) 34; 28; - 6
B) 9; 3; - 6
C) 40; 27; - 13
D) 3; 9; 6
E) 30; 36; 6

Question 54

Your food- services company has been named as the sole provider of meals at a small university. The cost and demand schedules are: $$\begin{array}{l}\begin{array} { | c | c | c | c | c | } \hline \text { Sold per Day } & \text { Price per Meal } & \begin{array} { c } \text { Total } \\\text { Fixed Cost }\end{array} & \begin{array} { c } \text { Total } \\\text { Variable Cost }\end{array} & \text { Total Revenue } \\\hline 0 & \$ 3.50 & \$ 150 & 0 & 0 \\\hline 100 & \$ 3.25 & \$ 150 & \$ 300 & \$ 325 \\\hline 200 & \$ 3.00 & \$ 150 & \$ 500 & \$ 600 \\\hline 300 & \$ 2.75 & \$ 150 & \$ 650 & \$ 825 \\\hline 400 & \$ 2.50 & \$ 150 & \$ 750 & \$ 1000 \\\hline 500 & \$ 2.25 & \$ 150 & \$ 830 & \$ 1125 \\\hline 600 & \$ 2.00 & \$ 150 & \$ 905 & \$ 1200 \\\hline 700 & \$ 1.75 & \$ 150 & \$ 995 & \$ 1225 \\\hline\end{array}\\\text { TABLE } 10 - 2\end{array}$$

-Refer to Table 10- 2, and suppose that the firm is a single- price monopolist. The level of output at which profits are zero is between

A) 0 and 100 meals.
B) 100 and 200 meals.
C) 200 and 300 meals.
D) 300 and 400 meals.
E) 300 and 500 meals.

Question 55

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 monopolist could maximize its profits by

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

Question 56

If a monopolist is practicing perfect price discrimination, then

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

Question 57

Economic profit for a monopolistic firm will equal zero when

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

Question 58

Your food- services company has been named as the sole provider of meals at a small university. The cost and demand schedules are: $$\begin{array}{l}\begin{array} { | c | c | c | c | c | } \hline \text { Sold per Day } & \text { Price per Meal } & \begin{array} { c } \text { Total } \\\text { Fixed Cost }\end{array} & \begin{array} { c } \text { Total } \\\text { Variable Cost }\end{array} & \text { Total Revenue } \\\hline 0 & \$ 3.50 & \$ 150 & 0 & 0 \\\hline 100 & \$ 3.25 & \$ 150 & \$ 300 & \$ 325 \\\hline 200 & \$ 3.00 & \$ 150 & \$ 500 & \$ 600 \\\hline 300 & \$ 2.75 & \$ 150 & \$ 650 & \$ 825 \\\hline 400 & \$ 2.50 & \$ 150 & \$ 750 & \$ 1000 \\\hline 500 & \$ 2.25 & \$ 150 & \$ 830 & \$ 1125 \\\hline 600 & \$ 2.00 & \$ 150 & \$ 905 & \$ 1200 \\\hline 700 & \$ 1.75 & \$ 150 & \$ 995 & \$ 1225 \\\hline\end{array}\\\text { TABLE } 10 - 2\end{array}$$

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

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

Question 59

The diagram below shows a pharmaceutical firm's demand curve and marginal cost curve 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, consumer surplus is represented by

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

Question 60

Suppose a monopolist faces the demand curve and cost curves shown below. FIGURE 10- 4
Refer to Figure 10- 4. Suppose this firm experiences an increase in the demand for its product. In the short run, this profit- maximizing monopolist will

A) increase price and produce the same output.
B) lower price and increase output.
C) increase price and reduce output.
D) neither raise price nor change output.
E) increase price and output.

Question 61

The diagram below shows a pharmaceutical firm's demand curve and marginal cost curve 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 generate a total profit represented by

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

Question 62

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

Question 63

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

Question 64

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

Question 65

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

Question 66

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

Question 67

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

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

Question 68

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

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

Question 69

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

Question 70

Monopolistic firms do not have supply curves because

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

Question 71

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

Question 72

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

Question 73

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

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

Question 74

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

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

Question 75

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

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

Question 76

Suppose the market for some product can be divided into two segments, and a monopolist can set a different price in each segment. The profit- maximizing price discrimination across these two market segments will lead to

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

Question 77

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

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

Question 78

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

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

Question 79

Suppose a monopolist faces the demand curve and cost curves shown below. FIGURE 10- 4
Refer to Figure 10- 4. A profit- maximizing single- price monopolist would produce the quantity

A) Q0.
B) Q3.
C) Q2.
D) Q1.
E) Q4.

Question 80

If a monopolist's 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.