Deck 11: Monopoly

Question 1

In the long-run, profit maximizing monopolists

A)price where MC and price are equal.
B)never make positive economic profits.
C)produce where average total costs are minimized.
D)will produce where MC is below long run ATC.

Answer 1

D

Question 2

In the diagram below, the profit maximizing firm is

A)making positive economic profit.
B)making zero economic profit.
C)making negative economic profit.
D)one cannot tell.

Answer 2

making zero economic profit.

Question 3

In the diagram below, the profit maximizing price level is

A)1.
B)2.
C)3.
D)4.

Answer 3

4.

Question 4

The demand equation for a single price monopolist is P = 50 - Q. The marginal revenue equation for this monopolist is

A)25 - Q.
B)50 - 2Q.
C)50 - Q.
D)100 - Q.

Question 5

If the demand curve for a single price monopolist always is a downward sloping straight line, then marginal revenue will be

A)a straight line with a negative slope of twice the demand curve slope.
B)a straight line with a negative slope of one-half the demand curve slope.
C)identical to the demand curve.
D)a horizontal line.

Question 6

In the diagram below, the profit maximizing output level is

A)0A.
B)0B.
C)0C.
D)It is impossible to say.

Question 7

A profit maximizing monopolist sets output where

A)MC = MR.
B)MC = P.
C)MC = demand.
D)it depends on the average costs in each case.

Question 8

The total revenue curve for a firm is given by TR = 2Q.

A)The firm is definitely a monopolist.
B)The firm is definitely not a monopolist.
C)The firm may be a monopolist or a perfectly competitive firm.
D)One cannot tell from the equation what market form applies.

Question 9

If a profit maximizing monopolist faces a linear demand curve and has zero marginal cost, it will produce where demand elasticity is __________________ if it will produce at all.

A)inelastic
B)elastic
C)1
D)Information is inadequate to answer the question.

Question 10

If a profit maximizing monopolist sells output for $100, then we know that its marginal revenue is

A)more than $100 if it is a perfect price discriminator.
B)less than $100 if it is a single price monopolist.
C)equal to $100 in all cases.
D)less than $100 if it is a perfect price discriminator.

Question 11

Which of the following would erode the monopoly pricing power of a firm that was controlling a market?

A)New technology developed by the firm that lowered long run average costs.
B)The development of substitutes for the product by other firms.
C)A tax on corporate profits.
D)All of these would reduce the monopoly power of the firm.

Question 12

A monopolist has a marginal revenue curve given by MR = 102 - Q, and a total cost curve given by TC = Q2 + 16. The monopolist's profit maximizing price and quantity are _______, _____ respectively.

A)85; 34
B)52; 50
C)100; 2
D)77; 50

Question 13

If a profit maximizing monopolist faces a linear demand curve and has zero marginal cost, it will produce at

A)the lowest point of marginal revenue curve.
B)elasticity of demand equals 1.
C)the lowest point of marginal profit curve.
D)All of the choices are correct.

Question 14

A natural monopoly always has

A)a downward sloping long run average cost curve.
B)a downward sloping marginal cost curve.
C)its profit maximization point where price = marginal cost.
D)patent rights.

Question 15

Monopoly is characterized by

A)many close substitutes.
B)no barriers to entry.
C)a downward sloping demand curve.
D)a horizontal demand curve.

Question 16

Which of the following is not a source of monopoly power?

A)Exclusive control over inputs
B)Economies of scale
C)Patents
D)Rapid low cost technological change in the industry

Question 17

If a firm could perfectly price discriminate,

A)the marginal revenue curve would be the same as the demand curve.
B)the marginal revenue curve would lie below the demand curve.
C)the marginal revenue curve would lie above the demand curve.
D)there would be no marginal revenue function.

Question 18

The marginal revenue curve of a single price monopolist

A)lies above the demand curve.
B)lies below the demand curve.
C)lies along the demand curve.
D)is a horizontal line.

Question 19

If the owner of the firm, shown above is a profit maximizer, the firm should ______ in the short run.

A)continue to operate at the existing output
B)shutdown
C)expand output to lower costs
D)More data is needed to say definitively what the firm should do.

Question 20

Which statement is true for a profit maximizing monopolist?

A)It always faces a downward sloping demand curve.
B)It can avoid diminishing returns to production.
C)It will not produce where marginal cost equals marginal revenue.
D)It can charge whatever price it wants.

Question 21

In second-degree price discrimination it is true that

A)people who buy a lot pay a lower price.
B)people who buy relatively little pay a lower price.
C)the monopolist cannot earn economic profits.
D)the market need not be segmented.

Question 22

Say a monopolist sells in two separate markets, with demand PA = 100 - 2Q and PB = 50 - Q respectively. Marginal costs in both markets are constant and equal to 8. The monopolist would charge a price of _______ in market B in order to maximize profits.

A)29
B)21
C)8
D)0

Question 23

Under rate of return regulation,

A)P = MC.
B)P = ATC.
C)P = AVC.
D)P > ATC.

Question 24

Under rate of return regulation, firms earn

A)positive economic profits.
B)negative economic profits.
C)zero economic profits.
D)zero accounting profits.

Question 25

Price discrimination is possible only if

A)economies of scale exist.
B)markets can be segregated.
C)each person in the market has the same elasticity of demand.
D)prices are kept secret so those paying the high price do not know that others paid less.

Question 26

In the long run, equilibrium for a monopolist is when

A)the short-run average cost curve is at its lowest point.
B)the long-run average cost curve is at its lowest point.
C)the short-run and long-run average cost curves are at their lowest points.
D)None of these is necessarily true.

Question 27

For the output maximizing monopolist

A)average total cost must be falling.
B)marginal revenue equals marginal cost.
C)long-run marginal cost equals demand.
D)price equals average total cost.

Question 28

A single-price monopolist with a positive marginal cost will maximize profit by producing where

A)demand is price elastic.
B)demand is price inelastic.
C)demand is unit elastic.
D)Any of these may apply.

Question 29

Which of the following could not be considered price discrimination?

A)The issuing of discount tickets to week-end travelers.
B)Airlines offering super-saver fares to everyone.
C)Movies offering cheap matinees.
D)Senior citizen's discounts.

Question 30

The supply curve for a monopolist

A)is upward sloping.
B)is vertical.
C)does not exist.
D)is downward sloping.

Question 31

Which of the following is not true for a profit maximizing single-price monopolist in the long run?

A)It will make profit or break even.
B)Price is greater than marginal revenue.
C)Marginal revenue equals marginal cost.
D)Demand is inelastic.

Question 32

The profit maximizing markup (over MC) is given by

A)1/elasticity.
B)elasticity.
C)elasticity2.
D)elasticity + 1.

Question 33

According to the text, the most important of the five factors which give rise to monopoly is

A)exclusive control over important inputs.
B)economies of scale.
C)patents.
D)government licenses.
E)network economies.

Question 34

In long-run equilibrium for a single-price monopolist,

A)the plant size is always the one at the bottom of the long-run ATC curve.
B)output is at the level where short-run and long-run marginal costs are the same.
C)marginal cost equals ATC.
D)marginal revenue equals price.

Question 35

Say a monopolist knew that at the current price for its product demand is inelastic. If marginal costs for this firm are zero, then in order to maximize profits this monopolist should

A)increase output.
B)reduce output.
C)keep output at the same level.
D)decrease its price.

Question 36

Say a monopolist sells in two separate markets, with demand PA = 100 - 2Q and PB = 50 - Q respectively. Marginal costs in both markets are constant and equal to 8. The profit maximizing quantity of output in market A would be

A)46.
B)23.
C)21.
D)5.

Question 37

A profit maximizing monopolist faces the following information: P = $4, MR = $2, MC = $1.50. The firm should

A)shut down.
B)decrease output.
C)increase output.
D)stay at its current level of output.

Question 38

A profit maximizing monopolist faces the following information: P = $10, MR = $5, ATC = $6, MC = $5. The firm should

A)shut down.
B)decrease output.
C)increase output.
D)stay at its current level of output.

Question 39

The demand equation for a single price monopolist is P = 120 - 3Q. The marginal revenue curve for this monopolist is

A)120 - 1.5Q.
B)60 - 3Q.
C)60 - 6Q.
D)120 - 6Q.

Question 40

In first-degree price discrimination, the monopolist

A)knows the equilibrium price.
B)can segment the market to the fullest extent.
C)charges only two different prices.
D)gets less of the consumer surplus than would be taken if 2^nd degree price discrimination was practiced.

Question 41

Which of the following is false?

A)Profit is maximized when MR = MC for both monopolies and perfect competition firms
B)Monopolies profit maximize and perfect competitive firms output maximize
C)Both monopolies and perfect competition firms earn zero profit in the long run
D)At equilibrium, price is higher than marginal cost for monopolies but not for competitive firms

Question 42

Suppose you own a firm that produces widgets and is a monopoly. The market demand is given by the equation P = 100 - 2Q, where P is the price of gadgets and Q is the quantity of gadgets sold per week. The firm's marginal costs are given by the equation MC = 16Q. When the monopolist maximizes profits the price elasticity of demand for widgets is

A)9.
B)36.
C)0.5.
D)0.02.

Question 43

If the marginal costs are constant and zero for a single price monopolist facing the demand curve P = 10 - Q, what will profits be if fixed costs are 12?

A)10
B)12
C)13
D)38

Question 44

A single price monopoly that faces the demand curve P = 10 - Q and profit maximizes by reducing price from $6 to $5 must have a marginal cost of

A)1.
B)5.
C)6.
D)10.

Question 45

If the firm facing the demand curve P = 10 - Q still has zero marginal costs and is now a perfect price discriminator instead of a single price monopolist, what will profits be if fixed costs are 12?

A)10
B)12
C)13
D)38

Question 46

A firm with a demand curve P = 10 - Q is a perfect price discriminating monopolist with zero marginal costs and fixed costs of 12. Consider the following two statements comparing the price discriminating case with a single price monopolist. 1) In this case consumers are better off as a group because more of the product is produced. 2) Producers are better off because they have higher profits. Which of the following comments about these statements is true?

A)Both statements are true.
B)Only the first statement is true.
C)Only the second statement is true.
D)Both statements are false.

Question 47

If a monopolist had no costs, its best possible price would be where demand is

A)infinitely elastic.
B)relatively (but not perfectly) elastic.
C)unit elastic.
D)relatively (but not completely) inelastic.

Question 48

Explain why price discrimination solves the welfare loss problem of monopoly, but then describe the downside of solving the welfare loss problem this way.

Question 49

A single price profit maximizing monopolist is inefficient because

A)it produces too much output.
B)it perfectly price discriminates when it can.
C)the sum of consumer and producer surplus is less than it could be.
D)it produces where price equals marginal cost rather than where marginal cost equals marginal revenue.

Question 50

A single price monopolist has a demand curve: P = 500 - 50Q. It has the total cost curve: TC = 1000 + 100Q. If the firm is a profit maximizer or loss minimizer, what output and price should it plan for?

Question 51

Which is true of a single price monopoly firm?

A)Its supply curve is equal to its marginal cost function.
B)It creates more welfare loss to society than a perfect price discriminating monopolist.
C)Its shutdown point is where ATC = price.
D)An increased profits tax will lower the quantity the firm will produce.

Question 52

If the monopolist facing the demand curve P = 10 - Q is a perfectly discriminating monopolist and marginal cost is constant at $4, how much will the firm sell if it profit maximizes?

A)6
B)5
C)4
D)10

Question 53

Which of the following explains why theater prices for popcorn are three or four times higher than the popcorn price in the grocery store?

A)The grocery store sells a much higher volume and gets its profits that way.
B)The cost of popping the popcorn is high.
C)Grocery stores are satisfied with normal profit while theaters seek economic profit.
D)The demand curve for popcorn in a theater is more inelastic than the demand for popcorn at the grocery store.

Question 54

Which of the following is not true?

A)A monopolist typically seeks to maximize profits.
B)A monopolist can set price at arbitrarily high levels.
C)Economies of scale are the cause of natural monopolies.
D)Monopolists price on the elastic portion of their demand curves.

Question 55

If the firm facing the demand curve P = 10 - Q has zero marginal costs and is a perfect price discriminator instead of a single price monopolist, and fixed costs are 12. What is the profit (loss) of the firm?

Question 56

Many college bookstores give faculty a discount that students do not receive. Show with a sketch graph why this practice is most likely a profit maximizing strategy instead of a college perk given to the faculty at college expense.

Question 57

I frequently buy something which then has a rebate offer attached. I must fill in all the information requested, send off the form and then wait 8 weeks for the rebate. This practice is referred to as

A)the hurdle model of price discrimination.
B)exclusive contracting.
C)a profit maximizing markup.
D)network economics.

Question 58

A firm facing the demand curve P = 10 - Q has zero marginal costs, fixed costs of 12, and is a single price monopolist. What quantity would it produce and what would its profit (loss) situation then be?

Question 59

All of the following are true about a monopolist except:

A)Average and marginal revenues are not the same.
B)Marginal revenue is greater than price.
C)Marginal revenue decreases with increases in output.
D)Marginal revenue can be negative.

Question 60

Show graphically why economists refer to single-price monopoly market structure as inefficient.

Question 61

Sketch graph a natural monopoly like a city transportation subway with the typical ATC, MC, and demand and MR functions
A.Label the profit maximizing monopoly price with a P1.
B.Label the typical public utility commission regulated price which requires no subsidy as P2.
C.Label the socially efficient price as P3.
D.Shade in the area of the subsidy required in one of the cases above.
E.Explain why a subsidy is often used for public transportation but not for municipal water supply.

Question 62

Suppose you own a firm that produces widgets and is a monopoly. The market demand is given by the equation P = 50 - 2Q, where P is the price of gadgets and Q is the quantity of gadgets sold per week. The marginal cost for the firm is 6Q. What is the single price monopoly output and price?

Question 63

If the demand curve is P = 48 - 2Q and MC = 0, calculate the lost social welfare that results from a single price monopoly profit maximizing strategy.