Graded Homework // Chapter 13 // Microeconomics

The demand curve for a monopoly is: the MR curve above the horizontal axis. above the MR curve. the entire MR curve. the MR curve above the AVC curve.

above the MR curve.

The demand curve for a monopoly is: the MR curve above the horizontal axis. identical to the MR curve. the MC curve above the AVC curve. also the industry demand curve.

also the industry demand curve.

Price discrimination leads to a _____ price for consumers with a _____ demand. higher; more elastic lower; less elastic higher; perfectly elastic lower; more elastic

lower; more elastic

(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 perfectly competitive industry, deadweight loss is:

$0

Figure: PPV Reference: Ref 13-13 (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 $40. If the cable company practices perfect price discrimination, consumer surplus will be: $0. $180. $40. $100.

$0.

Figure: A Profit-Maximizing Monopoly Firm Reference: Ref 13-3 (Figure: A Profit-Maximizing Monopoly Firm) Look at the figure A Profit-Maximizing Monopoly Firm. This firm's cost per unit at its profit-maximizing quantity is: $20. $8. $15. $18.

$18.

Figure: Monopoly Model Reference: Ref 13-6 (Figure: Monopoly Model) Look at the figure Monopoly Model. When the firm is in equilibrium (that is, maximizing its economic profit), its total revenue is the area of rectangle: 0PDJ. 0SBJ. IPDH. SPDB.

0PDJ

Figure: The Profit-Maximizing Output and Price Reference: Ref 13-17 (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. The profit-maximizing output for a monopolist is: 8. 16. 0. 20.

8.

Price discrimination leads to a _____ price for consumers with a _____ demand. Select one: a. higher; less elastic b. higher; more elastic c. higher; perfectly elastic d. lower; less elastic

A: higher, less elastic (make sure to check question)

A monopolist sells cable subscriptions in a small town and finds that it can sell 100 subscriptions when the price is $15 a week and an additional 75 subscriptions when the price is $10 a week. The MC for the provision of the cable is $5 a week. If this monopolist chooses to sell subscriptions at one price, it will sell ________ units at a price of ________ and earn economic profits equal to ________.

100; $15; $1,000

(Problem 11). A monopolist knows that in order to expand the quantity of output it produces from 8 to 9 units, it must lower the price of its output from $2 to $1. Calculate the quantity effect and the price effect. Use these results to calculate the monopolist's marginal revenue of producing the 9th unit. The marginal cost of producing the 9th unit is positive. Is it a good idea for the monopolist to produce the 9th unit? A. No, the monopolist should not produce the 9th unit; doing so will decrease its profit. B. Yes, the monopolist should produce the 9th unit; doing so will increase its profit. C. Yes, the monopolist should produce the 9th unit, even though doing so will decrease its profit.

A. No, the monopolist should not produce the 9th unit; doing so will decrease its profit.

(Problem 9a). The accompanying diagram illustrates your local electricity company's natural monopoly. The diagram shows the demand curve for kilowatt-hours (kWh) of electricity, the company's marginal revenue (MR) curve, its marginal cost (MC) curve, and its average total cost (ATC) curve. The government wants to regulate the monopolist by imposing a price ceiling. If the government does not regulate this monopolist, which price will it charge? A. $0.30 B. $0.80 C. $0.40 D. $0.50

B. $0.80

(Problem 1c). Chiquita, a supplier of bananas and owner of most banana plantations, possesses market power. What is the source of Chiquita's market power? A. a government-created barrier to entry B. control over a scarce resource C. increasing returns to scale

B. control over a scarce resource

(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, how much is consumer surplus when the monopolist maximizes profit? Select one: a. $20 b. $40 c. $80 d. $160

C. $80

(Problem 9c). The accompanying diagram illustrates your local electricity company's natural monopoly. The diagram shows the demand curve for kilowatt-hours (kWh) of electricity, the company's marginal revenue (MR) curve, its marginal cost (MC) curve, and its average total cost (ATC) curve. The government wants to regulate the monopolist by imposing a price ceiling. If the government imposes a price ceiling of $0.50, will the monopolist make a profit, lose money, or break even? A. The monopolist will have a small profit. B. The monopolist will incur a loss. C. The monopolist will have a large profit. D. The monopolist will break even.

D. The monopolist will break even.

Diamond rings are relatively scarce because: - of monopolistic competition. - diamond producers limit the quantity supplied to the market. - the demand for diamonds is so high. - according to geologists, diamonds are less common than any other gem-quality stone.

diamond producers limit the quantity supplied to the market. EX: De Beers Jewlers

The large barriers to entry are a reason a monopoly: produces with no fixed costs in the long run. produces at the minimum average total cost in the long run. earns an economic profit in the long run. maximizes its profits by producing where P = MC.

earns an economic profit in the long run.

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 revenue equals $10. marginal cost equals marginal revenue. average total cost is greater than $10. average total cost equals $10.

marginal cost equals marginal revenue.

Suppose a monopoly can separate its customers into two groups. If the monopoly practices price discrimination, it will charge the lower price to the group with: The answer cannot be determined with the information given. the lower price elasticity of demand. the higher price elasticity of demand. the fewer close substitutes.

the higher price elasticity of demand.

Figure: Short-Run Monopoly Reference: Ref 13-1 (Figure: Short-Run Monopoly) Look at the figure Short-Run Monopoly. The marginal cost of producing the profit-maximizing quantity is cost: O. P. Q. N.

P.

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? A booming economy increases the demand for lemonade and attracts entry into the market. The government abolishes the system of patents and copyrights. The average total cost curve for firms in the industry is horizontal. You own exclusive rights to harvest lemons from all domestic citrus orchards.

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

(Problem 1a). Merck, the producer of the patented cholesterol-lowering drug, Zetia, possesses market power. What is the source of Merck's market power? A. a government-created barrier to entry B. control over a scarce resource C. increasing returns to scale

A. a government-created barrier to entry

(Problem 1d). The Walt Disney Company, the creators of Mickey Mouse, possesses market power. What is the source of the company's market power? A. increasing returns to scale B. control over a scarce resource C. a government-created barrier to entry

C. a government-created barrier to entry

(Problem 1b). WaterWorks, a provider of piped water to homes, possesses market power. What is the source of WaterWorks' market power? A. control over a scarce resource B. a government-created barrier to entry C. increasing returns to scale

C. increasing returns to scale

(Problem 9b). The accompanying diagram illustrates your local electricity company's natural monopoly. The diagram shows the demand curve for kilowatt-hours (kWh) of electricity, the company's marginal revenue (MR) curve, its marginal cost (MC) curve, and its average total cost (ATC) curve. The government wants to regulate the monopolist by imposing a price ceiling. If the government imposes a price ceiling equal to the marginal cost, $0.30, will the monopolist make profits or lose money? If the government does impose this price ceiling, will the firm continue to produce in the long run? A. The monopolist will break even, and in the long run it will exit the market. B. The monopolist will have a small profit, but in the long run it will exit the market. C. The monopolist will incur a loss, but in the long run it will continue to produce. D. The monopolist will incur a loss, and in the long run it will exit the market.

D. The monopolist will incur a loss, and in the long run it will exit the market.