Deck 17: The Age of Entrepreneurship: Monopoly

Question 1

The practice of charging different prices to different consumers is known as price discrimination.

Answer 1

True

Question 2

The monopolist will want to know which of the following?

A) Will my competitors be able to earn extra-normal profits?
B) What is the profit-maximizing amount of output to produce?
C) What is the profit-minimizing price to charge?

Answer 2

What is the profit-maximizing amount of output to produce?

Question 3

Provided that reselling is costless, an arbitrage process will continue until only ___________________ in the market.

A) two prices exist
B) one price exists
C) Neither answer is correct

Answer 3

one price exists

Question 4

Societal consumer surplus is the difference between what a producer receives for the goods it produces and the cost of producing them.

Question 5

The Elasticity Rule for Monopoly Pricing states that a monopolist should never price a commodity on the portion of the demand curve, which is

A) downward sloping
B) inelastic
C) elastic

Question 6

Deadweight loss is the dollar measure of the loss that society suffers when units of a good whose marginal social benefits exceed the marginal social cost of providing them are not produced because of the profit-maximizing motives of the firm involved.

Question 7

The socially optimal price-quantity combination maximizes the sum of the producer surplus and the consumer surplus.

Question 8

The price that equals the marginal cost of producing the quantity demanded by the market at that price is the socially optimal single price.

Question 9

In relation to the downward-sloping, straight-line demand curve, the MR curve falls

A) below
B) sometimes above and sometimes below
C) above

Question 10

The price charged by a profit-maximizing monopolist and the elasticity of demand will be

A) inversely related
B) independent
C) directly related

Question 11

The difference between what the consumers would have been willing to pay for a good and the amount the good is actually sold for is known as surplus goods.

Question 12

For a monopolist, the price that is on the demand curve at the optimal quantity point is the

A) maximum price
B) optimal price
C) arbitraged price

Question 13

An inverse demand function indicates the price that would result if any given quantity were placed on the market.

Question 14

A two-part tariff is a discrimination technique in which the quantity of a product or service is composed of two parts.

Question 15

When the demand curve is downward sloping, a monopolist will produce units of a good until the point where the marginal revenue of the last unit sold is equal to its

A) marginal cost
B) average cost
C) fixed cost

Question 16

A process of buying a commodity and reselling it at a favorable price is called

A) arbitrage
B) wholesaling
C) market-making

Question 17

For the firm, the demand curve shows average

A) revenue
B) cost
C) profit

Question 18

The increase in total revenue of a firm generated by the sale of an additional unit of output is called marginal revenue.

Question 19

An entrepreneur will continue to produce and sell units as long as the marginal revenue received from sales is _____________________ the marginal cost of producing those units.

A) more negative than
B) greater than
C) less than

Question 20

Arbitrage pricing is the price of a good or asset that results after the process of arbitrage has occurred if arbitrage opportunities existed.

Question 21

If an entrepreneur charges a large enough lump-sum fee to make a profit, it may even be possible to set the per-unit price at the

A) segmented market price
B) N-part tariff price
C) socially optimal single price

Question 22

A monopolist would use a two-part tariff to transfer

A) consumer surplus to the monopolist
B) producer surplus to the consumers
C) Both answers are correct

Question 23

If an entrepreneur receives a price from selling a certain number of units, which exceeds the average cost of producing those units, the entrepreneur will

A) earn extra-normal profits
B) suffer a net loss
C) just break even

Question 24

Price discrimination depends on the nonexistence of

A) arbitrage opportunities
B) consumer surplus
C) extra-normal profits

Question 25

Explain the Elasticity Rule for Monopoly Pricing.

Question 26

A two-part tariff system will be beneficial to the consumers only if the fee they pay is _______________ the consumer surplus they enjoy by buying the good at price p*.

A) less than
B) equal to
C) greater than

Question 27

If a monopolist must charge one price to all consumers, then the price that maximizes the sum of the consumer surplus and the producer surplus must be the price at which the demand curve intersects the

A) average cost curve
B) marginal revenue curve
C) marginal cost curve

Question 28

Describe the relationship between elasticity and price discrimination.

Question 29

Under a two-part tariff system, some consumers will

A) decide not to consume the product at all
B) not be able to afford the high price and fee
C) Both answers are correct

Question 30

A price-discriminating monopolist sets prices that _____________________ the absolute value of the elasticity of demand.

A) are independent of
B) vary inversely with
C) vary directly with

Question 31

The difference between what the consumers would have been willing to pay for a good and the amount the good is actually being sold for is called societal

A) deadweight loss
B) producer surplus
C) consumer surplus

Question 32

The difference between what a producer receives for the goods it produces and the cost of producing them is known as

A) deadweight loss
B) producer surplus
C) consumer surplus

Question 33

Markets whose physical separation or other characteristics make arbitrage impossible are called

A) segmented markets
B) foreign markets
C) costless markets

Question 34

If a monopolist imposes a two-part tariff system and reselling is costless, the ultimate result will be

A) arbitrage
B) arbitrage pricing
C) a three-part tariff system

Question 35

If you were a monopolist, would you impose a two-part tariff system? Why or why not?

Question 36

A monopolist will choose the profit-maximizing quantity and price. Would society as a whole be better off with some other outcome?

Question 37

At the profit-maximizing quantities in segmented markets, the marginal __________ from selling the last unit in one market should be equal to the marginal __________ from selling the last unit in the other market (and equal to the common marginal __________).

A) revenue, revenue, revenue
B) revenue, revenue, cost
C) cost, cost, revenue

Question 38

A price discrimination technique in which the price of a product or service is composed of two parts-a lump-sum fee as well as a per-unit charge-is called a(n)

A) two-part tariff
B) socially optimal double price
C) import tariff

Question 39

Does a monopolist always earn extra-normal profits?

Question 40

The price will be higher in one segmented market, the more the demand for the product in that market is

A) inelastic
B) elastic
C) flexible