Chapter 15 | Monopoly
Due to the nature of the patent laws on pharmaceuticals, the market for such drugs switches from competitive to monopolistic once the firm's patent runs out.
False
If quantity equals 10,000 units at the lowest point on the ATC curve and MC equals MR at 12,000 units then the monopoly firm will typically choose to produce where per unit cost of production is at the minimum.
False
If quantity equals 15,000 units when price equals marginal cost and quantity equals 10,000 units when marginal cost equals marginal revenue, then the monopoly firm will typically choose to produce 15,000 units because the firm understands that is the best outcome for society.
False
If quantity equals 25,000 units when price equals marginal cost and quantity equals 15,000 units when marginal cost equals marginal revenue, then the profit-maximizing firm should increase production if it is presently producing 16,000 units.
False
Marginal revenue for a competitive firm is less than price, while marginal revenue for a monopoly is equal to the price it is able to charge.
False
A competitive firm maximizes profit at the point where marginal revenue equals marginal cost; a monopolist maximizes profit at the point where marginal revenue exceeds marginal cost.
False
A monopoly firm can sell 100 units of output for $100 per unit. Alternatively, it can sell 101 units of output for $99 per unit. The marginal revenue of the 101st unit of output is $99.
False
A monopoly firm generates large economic profits because the firm is always able to control both the price and quantity sold in the market.
False
A profit-maximizing monopolist charges a price of $36. The intersection of the marginal revenue and marginal cost curves occurs where output is 20,000 units and marginal cost is $24. Average total cost for 20,000 units of output is $32. As a result, the monopolist's profit is more than $80,000.
False
Allowing an inventor to have the exclusive rights to market a new invention will undoubtedly lead to a product that is priced lower than it would be without the exclusive rights and, as a consequence, will lead to substantially lower profits for the inventor.
False
Suppose that a monopoly firm maximizes its profit by producing 10,000 units of output. At that level of output, its marginal revenue is $30, its average revenue is $50, its average total cost is $45 and average variable cost is $38. If the firm operates at the output amount where marginal cost is $30, then the firm's profit is less than $75,000 but more than $60,000.
False
The economic inefficiency of a monopolist can be measured by the amount of economic profits that is realized by an unregulated monopolist.
False
When regulating a monopoly with average cost pricing, the monopoly is able to enjoy a zero economic profit and the deadweight loss of an unregulated monopoly is eliminated.
False
A monopoly firm can arise because of economies of scale or the existence of a barrier to entry such as a government provision for the exclusive right to produce a particular product.
True
A monopoly firm maximizes its profit by producing 10,000 units of output. At that level of output, its marginal revenue is $40, its average revenue is $60, its average total cost is $52 and average variable cost is $38. The firm's profit-maximizing price is $60 and total revenue is $600,000.
True
A profit-maximizing monopolist will produce the level of output at which marginal revenue is equal to marginal cost.
True
Consumers may benefit from monopolies if the firms invest their higher profits into something that benefits society such as medical research.
True
Deadweight loss is eliminated when the monopolist engages in perfect price discrimination
True
If the monopolist is earning a positive economic profit, it must be producing where price is greater than average total cost.
True
Monopolists have the ability to set prices at whatever level they desire but the demand curve will dictate how much they will be able to sell at that price.
True
Monopolists typically charge higher prices than competitive firms but sell less output than competitive firms.
True
Monopoly pricing causes a deadweight loss because a typical profit-maximizing monopolist will produce a level of output that is less than the output at which price is equal to marginal cost.
True
Price discrimination is a rational strategy for a profit-maximizing monopolist when there is no opportunity for customers to engage in arbitrage across market segmentations.
True
Selling a good at a price where the demand curve intersects the marginal cost curve is consistent with the socially optimal level of output and a competitive market, but, it is not consistent with a market that consists of a profit-maximizing monopolist.
True
Suppose when a monopolist produces 1,000 units its average revenue is $75 per unit, its marginal revenue is $45 per unit, its marginal cost is $40 per unit, and its average total cost is $65 per unit. As a result, the monopolist is not currently maximizing profits; it should produce more units and charge a lower price to maximize profits.
True
The continuous downward slope of the average total cost curve suggests that the profit-maximizing natural monopolist is able to exploit economies of scale to keep competitors from successfully entering the market
True
The deadweight loss that arises from a monopoly is a consequence of the fact that the monopoly price is equal to average revenue but it is more than marginal revenue at the profit maximizing quantity.
True
When a monopoly increases its output and sales, the output effect works to increase total revenue and the price effect works to decrease total revenue and marginal revenue is negative when the output effect is less than the price effect.
True
When government regulators use a marginal cost pricing to regulate a natural monopoly, the regulated monopoly will experience a price below average total cost and, as a consequence, has an incentive to exit because total revenue is less than total cost.
True
When regulating a monopoly, a problem with setting price equal to average cost is a deadweight loss exists because output is not at its socially optimal level in this market and there is no incentive for the monopolist to lower its costs.
True