Chapter 12 Homework

If a monopoly selling 300 computers at ​$3000 decides to lower its price to ​$2000 in order to sell 100 more​ computers, then the firm

Has negative marginal revenue.

Priceline is a Web site that sells flights and hotel bookings based on the price that a consumer states that he or she is willing to pay. So consumers who want to book a flight or a hotel room need to tell Priceline the price that they are willing to​ pay, and the seller lets Priceline know whether it is willing to accept that price. Which of the following outcomes is likely using this form of​ pricing?

Producer surplus will​ rise, since some price offers by consumers will be higher than the price that Priceline would have​ charged, causing consumer surplus to shrink.

Sources of natural market power​ include:

1. Having individual expertise in a field 2. Network externalities 3. The presence of economies of scale

Which of the following statements are true regarding the​ profit-maximizing price charged by a​ monopolist? ​ A. It occurs at the quantity where MR​ = MC. B. It is greater than MR. C. It occurs along the elastic part of the demand curve. D. It occurs at the quantity where MC​ = D. E. It is greater than MC

A. It occurs at the quantity where MR​ = MC. B. It is greater than MR. C. It occurs along the elastic part of the demand curve. E. It is greater than MC

People who need​ life-saving drugs cannot do without them and surely will be willing to pay very high prices for them. So why​ can't producers of​ life-saving drugs charge any price that they wish​ to?

A​ monopolist, such as one selling​ life-saving drugs, still faces​ downward-sloping demand curves.

When a firm exercises its monopoly​ power, the cost to society is the​ ____________.

Deadweight Loss

To restrict a​ firm's monopoly​ power, why​ can't antitrust authorities just set a floor or a ceiling in the​ market?

It is difficult to set a fair​ price, and even if regulators​ did, the firm would then have no incentive to innovate.

Compared to a perfectly competitive market, consumer surplus is _______, producer surplus is __________, and deadweight loss is _________.

Lower, Higher, Higher

What equation calculates economic profit for a monopoly?

Profits = (P-ATC)*Q

Which of the following best describes network​ externalities?

They occur when a​ product's value increases as more consumers begin to use it.

A monopolist should continue to increase production until marginal

cost is equal to marginal revenue

The case for a natural monopoly is characterized by high _______ costs an decreasing ________ costs.

fixed, average

Which of the following describes a​ monopolist's demand​ curve? A. A y​-intercept of​ $5 and horizontal. B. A y​-intercept of​ $8 and​ downward-sloping with a slope of -1. C. A y​-intercept of​ $3 and​ upward-sloping with a slope of 1. D. An x​-intercept of 5 units and vertical.

B. A y​-intercept of​ $8 and​ downward-sloping with a slope of -1.

Which of the following best describes the relationship between price​ (P), marginal revenue​ (MR), and total revenue​ (TR) for a​ monopolist? A. When MR is​ rising, TR is​ rising, and when MR is​ falling, TR is falling. B. When MR is​ positive, TR is​ rising, and when MR is​ negative, TR is falling. C. As MR​ falls, TR rises. D. They are all equal for a monopolist.

B. When MR is​ positive, TR is​ rising, and when MR is​ negative, TR is falling.

When a firm exercises its monopoly​ power, social surplus is _________ when compared to a perfectly competitive market.

Lower

In a competitive​ market, a supply curve shows all the price and quantity combinations at which firms will produce. Does a monopoly face a similar supply​ curve?

No, a monopoly is a​ price-maker and its production decisions are determined by its​ downward-sloping demand curve.

In​ 1999, Priceline attempted to replicate this pricing strategy with groceries and gasoline. Using this pricing strategy with these two goods soon proved unprofitable. What could explain​ this?

The marginal cost of selling an airplane seat or a hotel room is relatively small, while the marginal cost of selling groceries and gasoline is relatively high.

A local bar sells half priced drinks to women on Tuesdays. This is an example of __________ price discrimination.

Third Degree

Monopolists do not use a supply curve because they

do not vary production based on market price.