ECON 221- Chapter 13

(Figure: The Profit-Maximizing Output and Price) Look at the figure The Profit-Maximizing Output and Price. Assume that there are no fixed costs and AC = MC = $200. At the profit-maximizing output and price for a monopolist, producer surplus is:

$3200

In perfect competition, the firm produces the output such that _____, and in monopoly, the firm produces the output such that _____.

P = MR = MC; P > MR = MC

(Figure: The Monopolist) Look at the figure The Monopolist. If this monopolist attempts to profit-maximize, it will produce _____ units and sell them at _____.

Q2; P2

De Beers became a monopoly by:

establishing control over diamond mines

Suppose the elasticity of demand for tickets to Broadway shows is 2.0 for men and 0.3 for women. To use price discrimination to increase profits, the producers should charge lower prices to _____ because their demand is _____.

men; elastic

An oligopoly is characterized as an industry in which:

there are few firms, each producing a differentiated or similar product

Suppose that a monopoly computer chip maker increases production from 10 microchips to 11 microchips. If the market price declines from $30 per unit to $29 per unit, marginal revenue for the eleventh unit is:

$19

(Table: Demand for Lenny's Coffee) Look at the table Demand for Lenny's Coffee. Lenny's Café is the only source of coffee for hundreds of miles in any direction. If Lenny's marginal cost of selling coffee is a constant $2 and the government forces Lenny to charge a price that eliminates deadweight loss, Lenny will charge _____ per cup and sell _____ cups.

$2; 8

(Table: Prices and Demand) Look at the table Prices and Demand. The New Orleans Saints have a monopoly on Saints logo hats. The marginal cost of producing a hat is $18. If the Saints were a perfectly competitive firm in a perfectly competitive industry, at their profit-maximizing price and output, consumer surplus would be:

$36

(Figure: Demand, Revenue, and Cost Curves) Look at the figure Demand, Revenue, and Cost Curves. Figglenuts-R-Us is a monopolist in the figglenut market. If the government wanted to regulate Figglenuts-R-Us such that the entire deadweight loss would be eliminated in the short run, it would impose a price ceiling of:

$40

(Table: Demand and Total Cost) Look at the table Demand and Total Cost. Lenoia runs a natural monopoly firm producing electricity for a small mountain village. The table shows Lenoia's demand and total cost of producing electricity. To maximize profits, Lenoia should charge a price of:

$400

(Figure: PPV) Look at the figure PPV, which shows the demand and marginal revenue for a pay-per-view football game on cable TV. Assume that the marginal cost and average cost are a constant $20. If the cable company is a monopoly, what price will it charge?

$60

(Table: Prices and Demand) Look at the table Prices and Demand. The New Orleans Saints have a monopoly on Saints logo hats. The marginal cost of producing a hat is $18. How much is deadweight loss at the Saint's profit-maximizing output?

$9

(Table: Lunch) Look at the figure Lunch. Joe makes and sells picnic lunches to people taking all-day rafting trips on the river. The marginal cost and average cost of each lunch are a constant $4. If Joe is a monopolist, what is producer surplus in the long run?

$90

(Table: Demand and Total Cost) Look at the table Demand and Total Cost. Lenoia runs a natural monopoly producing electricity for a small mountain village. The table shows Lenoia's demand and total cost of producing electricity. The profit-maximizing quantity of electricity for her to produce is _____ megawatts.

4

(Figure: The Monopolist III) Look at the figure The Monopolist III. If this monopolist perfectly price-discriminates, then it will produce _____ units. This will lead to producer surplus equal to _____, consumer surplus equal to _____, and a deadweight loss equal to _____.

70; $2,450; $0; $0

(Figure: Demand, Revenue, and Cost Curves) Look at the figure Demand, Revenue, and Cost Curves. Figglenuts-R-Us is a monopolist in the figglenut market. Figglenuts-R-Us will sell _____ figglenuts and set a price of _____ to maximize profits.

70; $65

Which of the following statements concerning monopoly is TRUE?

A monopoly has no rivals

When a monopolist practices price discrimination as opposed to setting a single price, the monopolist sells less but increases profits.

False

(Figure: Computing Monopoly Profit) Look at the figure Computing Monopoly Profit. To obtain maximum profits, the monopoly should produce the output determined by point:

G

(Figure: Short-Run Monopoly) Look at the figure Short-Run Monopoly. The profit-maximizing price is price:

N

A monopoly increases price by limiting the quantity supplied to a market.

True

You own a lemonade stand in a competitive market, and as such, you are a price-taking firm. Which of the following events would most likely increase your market power?

You own exclusive rights to harvest lemons from all domestic citrus orchards

The demand curve for a monopoly is:

above the marginal revenue curve

The demand curve for a monopoly is:

also the industry demand curve

Airlines that engage in price discrimination charge lower prices to vacation travelers because their _____ is more _____ than that of other travelers

demand; elastic

The demand curve facing a monopolist is:

downward-sloping, like the industry demand curve in perfect competition

The demand curve facing a monopolist is:

downward-sloping, unlike the horizontal demand curve facing a perfectly competitive firm

At the profit-maximizing level of production, a perfectly competitive industry will produce an _____ level of production, and a monopolist produces an _____ level of production.

efficient; inefficient

A monopolist or an imperfectly competitive firm practices price discrimination primarily to:

increase profits

(Table: Prices and Demand) The New Orleans Saints have a monopoly on Saints logo hats. The marginal cost of producing a hat is $18. If the Saints increase the number of hats they sell from four to five, the quantity effect is a(n) _____ in total revenue of _____.

increase; $20

Suppose that you build a high-speed, magnetically powered transportation system from New York to Los Angeles, and you are the only firm providing this service. High fixed costs resulting from the enormous quantity of capital used in this system enable decreasing average cost for any conceivable level of demand. Your monopoly would result from:

increasing returns to scale

A monopolist responds to an increase in demand by _____ price and _____ output.

increasing; increasing

If a monopolist is producing a quantity that generates MC = MR, then profit:

is maximized

If a monopolist can engage in perfect price discrimination:

it produces at the socially efficient level

In an industry characterized by extensive economies of scale:

large companies are more profitable than small companies

Marginal revenue for a monopolist is:

less than price

A monopolist is likely to produce _____ and charge _____ than a comparable perfectly competitive firm.

less; more

The GoSports Company is a profit-maximizing firm with a monopoly in the production of school team pennants. The firm sells its pennants for $10 each. We can conclude that GoSports is producing a level of output at which:

marginal cost equals marginal revenue

If a product's usefulness increases with the number of users, it:

network externalities

Suppose that a monopoly firm is required to pay a new annual license fee to do business in its city and that the fee is somewhat less than the economic profit the firm is now earning. In response to the increase in fees, the firm will:

not change its price

Because business travelers' demand for airline flights is relatively _____, small increases in price will result in relatively _____ decreases in additional business travelers.

price-inelastic; small

A monopoly:

produces a product with no close substitutes

If a monopolist is producing a quantity that generates MC > MR, then profit:

can be increased by decreasing production

If a monopolist is producing a quantity that generates MC < MR, then profit:

can be increased by increasing production

Critics of the National Collegiate Athletic Association (NCAA) argue that the NCAA monopolizes college athletics and prevents student-athletes from earning money while in college. If this is true, what type of entry barrier does the NCAA have?

control of a scarce resource or input