GAP Week 8

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Refer to Figure 16-2. A profit-maximizing monopoly's total revenue is equal to

P5 × Q3.

Refer to Figure 16-6. What is the monopoly price and quantity?

Price = A; quantity = X

The collection of statutes aimed at curbing monopoly power is called

antitrust law.

In a natural monopoly,

if the government requires marginal cost pricing, it will likely have to subsidize the firm.

Suppose most people regard emeralds, rubies, and sapphires as close substitutes for diamonds. Then DeBeers, a large diamond company, has

less market power than it would otherwise have.

Refer to Figure 16-5. Given that Bearclaws chooses the profit-maximizing price and quantity, what profit level will it obtain?

$280.

Refer to Figure 16-7. To maximize total surplus, a benevolent social planner would choose which of the following outcomes?

Q = 45 and P = 45

Refer to Figure 16-2. Profit can always be increased by increasing the level of output by one unit if the monopolist is currently operating at

Q1 or Q2 only.

Refer to Figure 16-3. A profit-maximizing monopoly will produce an output level of

Q3.

Monopoly firms face

downward-sloping demand curves, so they can sell as much output as they desire at the market price.

Refer to Table 16-1. At what price will the monopolist maximize their profit?

$18

The social cost of a monopoly is equal to its

deadweight loss.

Refer to Table 16-1. What is the maximum profit that the monopolist can earn?

$20

When a firm operates under conditions of monopoly, its price is

constrained by demand.

If a pharmaceutical company discovers a new drug and successfully patents it, patent law gives the firm

sole ownership of the right to sell the drug for a limited number of years.

One problem with government operation of monopolies is that

the government typically has little incentive to reduce costs.

A natural monopoly occurs when

there are economies of scale over the relevant range of output.

When regulators use a marginal-cost pricing strategy to regulate a natural monopoly, the regulated monopoly

will experience a loss.

Refer to Figure 16-5. Based upon the information shown, what price will Bearclaws charge to maximize profits?

$14.

Refer to Figure 16-4. What area measures the monopolist's profit?

(K − B) × W

The profit-maximization problem for a monopolist differs from that of a competitive firm in which of the following ways?

A competitive firm maximizes profit at the point where average revenue equals marginal cost; a monopolist maximizes profit at the point where average revenue exceeds marginal cost.

Refer to Figure 16-1. The shape of the average total cost curve reveals information about the nature of the barrier to entry that might exist in a monopoly market. Which of the following monopoly types best coincides with the figure?

Natural monopoly

Refer to Figure 16-4. How much output will the monopolist produce in order to maximize profit?

W

Monopolies are socially inefficient because the price they charge is

above marginal cost.

A benefit to society of the patent and copyright laws is that those laws

encourage creative activity.

Reduced competition through merging of companies will raise social welfare

if the social cost from the synergies exceeds the benefit of increased market power.

In order to sell more of its product, a monopolist must

lower its price.

For a monopoly, the socially efficient level of output occurs where

marginal revenue equals marginal cost.

When a single firm can supply a good or service to an entire market at a lower cost than could two or more firms, the industry is known as a

natural monopoly

If government regulation sets the maximum price for a natural monopoly equal to its marginal cost, then the natural monopolist will

produce a lower quantity of output than is socially optimal.

The deadweight loss associated with a monopoly occurs because the monopolist

produces an output level less than the socially optimal level.

Scenario 16-1 A monopoly firm maximizes its profit by producing Q = 500 units of output. At that level of output, its marginal revenue is $30, its average revenue is $60, and its average total cost is $34. Refer to Scenario 16-1.At Q = 500, the firm's profit is

$13,000.

Scenario 16-1 A monopoly firm maximizes its profit by producing Q = 500 units of output. At that level of output, its marginal revenue is $30, its average revenue is $60, and its average total cost is $34. Refer to Scenario 16-1. At Q = 500, the firm's total revenue is

$30,000.

Scenario 16-1 A monopoly firm maximizes its profit by producing Q = 500 units of output. At that level of output, its marginal revenue is $30, its average revenue is $60, and its average total cost is $34. Refer to Scenario 16-1. At Q = 500, the firm's marginal cost is

$30.

Refer to Figure 16-5. Based upon the information shown, what are total costs for Bearclaws, given that it maximizes profits?

$700.

Refer to Figure 16-5. Based upon the information shown, what is total revenue for Bearclaws, given that it maximizes profits?

$980.

A monopolist can sell 300 units of output for $45 per unit. Alternatively, it can sell 301 units of output for $44.60 per unit. The marginal revenue of the 301st unit of output is

-$75.40.

Refer to Figure 16-5. Based upon the information shown, how many units will Bearclaws produce to maximize profits?

70.

Refer to Figure 16-2. The demand curve for a monopoly firm is depicted by curve

A

Refer to Figure 16-4. What price will the monopolist charge in order to maximize profit?

K

To maximize total surplus with a monopoly firm, a benevolent social planner would choose the level of output where

MC intersects the demand curve.

Refer to Figure 16-6. What is the socially efficient price and quantity?

Price = B; quantity = Y

Refer to Figure 16-7. To maximize its profit, a monopolist would choose which of the following outcomes?

Q = 30 and P = 30

Which of the following is a necessary characteristic of a monopoly?

The firm is the sole seller of its product.

Refer to Figure 16-6. What is the area of deadweight loss?

The triangle 1/2[(A − C) × (Y − X)]

In order for antitrust laws to raise social welfare, the government must

be able to determine which mergers are desirable and which are not.

A monopoly can earn positive profits because it

can maintain a price such that total revenues will exceed total costs.

Refer to Figure 16-1. The shape of the average total cost curve in the figure suggests an opportunity for a profit-maximizing monopolist to take advantage of

economies of scale.

Refer to Figure 16-2. If the monopoly firm is currently producing Q4 units of output, then a decrease in output will necessarily cause profit to

increase if the output is between Q3 and Q4.

For a monopolist, when the price effect is greater than the output effect, an increase in output sold causes marginal revenue to be

negative.


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