Deck 23: Monopoly

Question 1

First degree price discrimination is efficient and therefore preferred by everyone to no price discrimination on the part of a monopolist.

Answer 1

False

Question 2

In the presence of positive production externalities, a monopolist might produce the efficient output level.

Answer 2

False

Question 3

The more profit a monopolist makes, the more inefficient is the monopoly outcome.

Answer 3

False

Question 4

In the absence of recurring fixed costs, a monopolist will always produce a positive output quantity.

Question 5

When perfect price discrimination comes in the form of a two-part tariff, one part of the "tariff" just covers marginal costs.

Question 6

Unlike perfectly competitive firms, monopolists produce where marginal revenue intersects marginal cost.

Question 7

Suppose a monopolist produces a positive level of output.If marginal costs are zero, this output level will occur where price elasticity of demand is exactly -1 unless there are recurring fixed costs.

Question 8

Low demand consumers are indifferent between second degree and first degree price discrimination.

Question 9

A (non-price discriminating) monopolist with zero marginal cost but recurring fixed costs may end up not producing even if it would be efficient for him to produce.

Question 10

The more consumer surplus is generated in a market dominated by a single monopoly, the more efficient the outcome.

Question 11

If a monopolist has no marginal costs and only recurring fixed costs, then, if he produces, any quantity that he produces is profit maximizing if the price elasticity of market demand is -1.

Question 12

Consumers prefer inefficient third degree price discrimination to efficient first degree price discrimination.

Question 13

Since revenue increases with increases in price when demand is relatively inelastic, monopolists produce on the inelastic part of demand.

Question 14

Suppose a monopolist has zero marginal cost.If he faces a market demand curve with constant price elasticity of -2, the profit maximizing output level approaches infinity.

Question 15

A monopolist will not produce at all if the intersection of marginal revenue and marginal cost occurs at a quantity at which average cost lies above the demand curve.

Question 16

Under second degree price discrimination, the average price per unit paid by high demand consumers is not equal to marginal willingness to pay for one additional unit.

Question 17

Depending on the shape of the marginal cost curve, a monopolist might produce an output level on the elastic or the inelastic part of demand.

Question 18

If a monopolist were allowed (and able) to first degree price discrimination, there would be no efficiency/equity tradeoff so long as the government can tax the profits of the firm and redistribute the tax revenues in a lump sum way.

Question 19

For any constant-elasticity market demand curve, a monopolist is profit maximizing regardless of what quantity he produces so long as marginal costs are zero.

Question 20

If the market demand curve has constant price elasticity of -1, the monopolist's price should approach infinity.

Question 21

If a monopolist faced a downward sloping average cost curve that lies fully above market demand, he will not produce if he can only charge a single per-unit price, but it would also be inefficient for him to produce.

Question 22

One way to deal with the efficiency problem of monopolies is to tax the profits of monopolists.

Question 23

Suppose market demand facing a monopolist is given by .Then the monopolist's marginal revenue curve (in the absence of price discrimination) is

A)
B)
C)
D)
E) F)None of the above

Question 24

Consider a commonly owned fishery in a market with no other fisheries.Given the Tragedy of the Commons, it is more efficient to let a single firm take over the fishery even if that gives the firm monopoly power.

Question 25

Suppose you observe that output in an industry occurs on the inelastic part of the market demand curve.Which of the following can you conclude from this?

A)The industry is definitely behaving as a monopoly that is protected by barriers to entry.
B)The industry is definitely not behaving as a monopoly that is protected by barriers to entry.
C)The industry could be perfectly competitive.
D)The industry is definitely not perfectly competitive.
E)Both (a) and (d)
F)Both (b) and (c)
G)Both (b) and (d)
H)None of the above

Question 26

What are some obstacles to price discrimination that a monopolist who is protected by high barriers to entry might face?

Question 27

Under which of the following monopoly pricing methods is the average price paid by a consumer equal to the marginal willingness to pay by that consumer:

A)First degree price discrimination
B)Second degree price discrimination
C)Third degree price discrimination
D)Both (a) and (b)
E)Both (b) and c
F)Both (a) and (c)
G)All of the above
H)None of the above

Question 28

There are many policies that can discipline market power, but often the most powerful discipline comes from potential consumers.

Question 29

If a monopolist has downward sloping average costs, he will not produce if he cannot price discriminate.

Question 30

How would a regulator of a monopoly think differently about regulating price discrimination depending on whether the regulator's objective is to maximize efficiency or to maximize consumer surplus?

Question 31

Monopoly power can last only if there are legal barriers to entry for other firms.

Question 32

Explain what the Saudi oil minister meant when he warned OPEC of using its market power too much by saying "Remember, the Stone Age did not end because we ran out of stones."

Question 33

Suppose a monopolist faces a constant elasticity market demand curve with price elasticity equal to -2.What will be the price charged by this monopolist assuming constant marginal cost of 10.

A)100
B)80
C)50
D)30
E)20
F)10
G)infinity
H)None of the above

Question 34

Suppose a monopolist has zero marginal cost but positive recurring fixed costs.Then, if it is efficient to produce, the efficient quantity to produce occurs where demand crosses the horizontal (quantity) axis.

Question 35

Explain why the deadweight loss from monopoly power may be exacerbated if the barrier to entry that creates monopoly power is created through exclusive government granting of a monopoly.For what types of government grants of monopoly power might this not be the case?

Question 36

Suppose a single firm has constant marginal cost and faced the demand curve
a.Illustrate in this graph how a monopolist who cannot price discriminate would price this good.What is the monopoly price and quantity?
b.Assuming no recurring fixed costs, how much profit does the monopolist make? How much consumer surplus is generated?
c.If the monopolist were able to first-degree price discriminate instead, how much would he produce? How much profit would he make? How much consumer surplus is generated?
d.Which outcome is more efficient and why?

Question 37

Because of the monopoly power that comes with being the only firm to produce a product, it is always more efficient to have multiple firms in an industry.

Question 38

Suppose a monopolist has marginal cost of zero but recurring fixed costs.Then the monopolist will produce the efficient level of output so long as he can first degree price discriminate.