Monopoly: ECON 102 Week 11
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.
If Annie has sold 40 apples in a perfectly competitive market and her total revenue is $80, when she sells her 41st apple, her marginal revenue will be:
$2.
Wendy has a monopoly in the retailing of motor homes. She can sell five per week at $21,000 each. If she wants to sell six, she can charge only $20,000 each. The quantity effect of selling the sixth motor home is:
$20,000.
Zoe's Bakery operates in a perfectly competitive industry. When the market price of iced cupcakes is $5, the profit-maximizing output level is 150 cupcakes. Her average total cost is $4, and her average variable cost is $3. Zoe's marginal cost is ________, and her short-run profits are:
$5; $150
The table above gives the total cost information for Hank and Helen's cherry farm. They sell their cherries in a perfectly competitive market, where the price is $6.00 per pound. If Hank and Helen produce and sell 6 pounds of cherries, what is their profit?
$8
The table above gives the total cost information for Hank and Helen's cherry farm. They sell their cherries in a perfectly competitive market, where the price is $6.00 per pound. What is the profit-maximizing quantity of cherries?
5 pounds.
Diamond rings are relatively scarce because:
De Beers limits the quantity of diamonds supplied to the market.
Which of the following is true?
If demand is downward sloping, P > MR.
Which of the following is true regarding monopolies?
Monopolies produce too little and charge too much from the standpoint of efficiency.
Which of the following statements about the differences between monopoly and perfect competition is incorrect?
Monopoly profits can continue to exist in the long run because the monopoly produces more and charges a higher price than a comparable perfectly competitive industry.
In the short run, a monopoly will stop producing if:
P < AVC.
Provided that there are no external benefits or costs, resources are efficiently allocated when:
P = MC.
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
A downward-sloping demand curve will ensure that:
P > MR.
Farmer Ted sells winter wheat in a perfectly competitive market. The market price for a bushel of winter wheat is $9. Ted has 270 bushels of wheat to sell. If his total variable cost is $2000 and his total fixed cost is $500, then
Ted is minimizing his losses.
If the price is consistently below average total cost, then in the short run a perfectly competitive firm should:
There is not enough information given to answer this question.
Which of the following is not a barrier to entry?
a ban on certain kinds of advertising
The pricing in monopoly prevents some mutually beneficial trades. The value of these unrealized mutually beneficial trades is called:
a deadweight loss.
Natural monopolies include all of the following except:
a diamond mining company.
In order to engage in price discrimination a firm must be:
a price-setter, and it must be able to identify consumers whose elasticities differ.
A monopoly is a market characterized by:
a single seller.
Which of the following is not an example of price discrimination?
a special Fourth of July sale.
A monopoly is an industry structure characterized by:
barriers to entry and exit.
If there is free entry and exit in a perfectly competitive industry, the long-run equilibrium will:
be at the level of zero economic profit for each firm.
If a monopolist is producing a quantity that generates MC < MR, then profit:
can be increased by increasing production.
If a perfectly competitive firm is producing a quantity where MC < MR, then profit:
can be increased by increasing production.
Quantity competition or Cournot behavior is most likely when oligopolistic firms:
cannot increase their level of output quickly due to limits on their productive capacity.
A Japanese steel firm sells steel in the United States and in Japan. Since the United States buys steel from a number of sources, the U.S. demand for Japanese steel is more price-elastic than the Japanese demand for Japanese steel. If the Japanese steel firm wishes to maximize its profits, it should:
charge a lower price in the United States and a higher price in Japan.
Tony runs Read Economic Reports. If Tony finds that the cost of completing an additional report is $100 and someone offers him $125 to complete this additional report, Tony should:
complete the additional report.
Table 12.2 Refer to Table 12.2. Jeri and Tom are arrested for having committed a crime. They are being interrogated individually and need to decide if they should confess or not confess. The police have enough information to put them in jail for 5 years. They also know the pair have committed a more egregious crime but without the help of one of the suspects they will not be able to convict them on this charge. The first number in each cell refers to the number of years of prison time Jeri will receive if she confesses or does not confess and the second number in each cell refers to the number of years of prison time Tom will receive if he confesses or does not confess. The dominant strategy for Jeri is to ________ and the dominant strategy for Tom is to ________.
confess; confess
Which of the following is most likely to cause firms to exit a perfectly competitive industry?
consumer income falls
Suppose GoSports pennant monopoly is broken up and the pennant industry becomes perfectly competitive. We would expect the ________ to increase from the breakup and ________ to decrease from the breakup.
consumer surplus and total surplus; producer surplus
If the price is greater than the average variable cost and less than the average total cost at the profit-maximizing quantity of output in the short run, a perfectly competitive firm will:
continue to produce at an economic loss.
Which of the following is a barrier to entry?
control of scarce resources, economies of scale, and government-created barriers (i.e., patents and copyrights)
Which of the following is a barrier to entry?
control of scarce resources, economies of scale, and government-created barriers (i.e., patents and copyrights).
In the short run, if P < AVC, a perfectly competitive firm:
does not produce output and incurs an economic loss.
In a perfectly competitive industry, the market demand curve is usually:
downward sloping.
The demand curve facing a monopolist is:
downward sloping.
In perfect competition:
each individual firm will have a small market share.
The large barriers to entry are a reason a monopoly:
earns an economic profit in the long run.
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.
In a monopoly in the long run:
entry by other firms will not occur.
A natural monopolist that is price regulated at the marginal cost output level will:
eventually incur losses if MC is less than ATC.
Perfect competition is a model of the market that assumes all of the following except:
firms face downward-sloping demand curves.
Suppose that the market for candy canes operates under conditions of perfect competition, that it is initially in long-run equilibrium, and that the price of each candy cane is $0.10. Now suppose that the price of sugar rises, increasing the marginal and average total cost of producing candy canes by $0.05; there are no other changes in production costs. Based on the information given, we can conclude that in the long run we will observe:
firms leaving the industry.
If firms are making positive economic profits in the short run, then in the long run:
firms will enter the industry.
If a competitive firm shuts down for a holiday, it must still pay its:
fixed cost.
Perfectly competitive industries are characterized by:
goods that are standardized
If a firm's economic profits are equal to zero, its accounting profits are most likely:
greater than economic profits.
A natural monopoly exists whenever a single firm
has economies of scale over the entire range of production that is relevant to its market.
If there are no obstacles to new firms entering the pet-sitting industry, then we can say that this industry:
has free entry.
Suppose that Jody sells fish in a perfectly competitive market. He can sell each fish for $5, and today he brought 20 fish to the fish market. If his total variable cost is $110 and his total fixed cost is $50, then:
he should have stayed home.
In perfect competition, the assumption of easy entry and exit implies that:
in the long run all firms in the industry will earn zero economic profits.
A curve that shows the quantity of a good or service supplied at various prices after all long-run adjustments to a price change have been completed is a long-run:
industry supply curve.
For a monopolist, the market demand curve:
is also the demand for the monopolist's product.
The marginal revenue received by a firm in a perfectly competitive market:
is the change in total revenue divided by the change in output.
In oligopoly, a firm must realize that:
it is in an industry in which another major firm may dominate, and the firm will need to judge its actions accordingly.
If a monopolist can engage in perfect price discrimination, then:
it produces at the socially efficient level.
The municipal swimming pool charges lower entrance fees to local residents than to nonresidents. Assuming that this pricing strategy increases the profits of the pool, we can conclude that nonresidents must have a ________ for swimming at the pool than residents.
less elastic demand
Compared to a perfectly competitive market, a monopolist will produce ________ and charge a ________ price.
less; higher
Lilly is the price-taking owner of an apple orchard. The price of apples is high enough that Lilly is earning positive economic profits. In the long run, Lilly should expect:
lower apple prices due to the entry of new firms.
For a monopolist with a downward-sloping demand curve, the quantity effect dominates the price effect at:
lower levels of production
Price discrimination leads to a ________ price for consumers with a ________ demand.
lower; more elastic
An assumption of the model of perfect competition is:
many buyers and sellers.
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.
A firm that is a natural monopoly will:
maximize profit by producing where MR = MC.
In contrast with perfect competition, a monopolist:
may have economic profits in the long run.
In contrast to perfect competition, a:
monopoly produces less at a higher price.
Suppose that the market for candy canes operates under conditions of perfect competition, that it is initially in long-run equilibrium, and that the price of each candy cane is $0.10. Now suppose that the price of sugar rises, increasing the marginal and average total costs of producing candy canes by $0.05. Based on the information given, we can conclude that in the short run a typical producer of candy canes will be making:
negative economic profits.
Marginal revenue for a monopolist is:
not equal to price.
The competitive model assumes all of the following except:
patents and copyrights
To practice effective price discrimination, a monopolist must be able to:
prevent the resale of goods among groups of buyers.
The practice of charging different prices to different customers for the same good or service, even though the cost of supplying those customers is the same, is:
price discrimination.
A firm that faces a downward-sloping demand curve is a:
price-setter.
Individuals in a market who must take the market price as given are:
price-takers.
Maximizing profits also means that a firm is attempting to:
produce at the output level where the difference between total revenue and total cost is the greatest.
The optimal output rule for a price-taking firm is to:
produce at the point at which price is equal to marginal cost of the last unit produced.
A monopolist is likely to ________ and ________ than a comparable perfectly competitive firm.
produce less; charge more.
Suppose that the market for haircuts in a community is perfectly competitive and that the market is initially in long-run equilibrium. Subsequently, an increase in population increases the demand for haircuts. In the short run, we expect that the market price will ________ and the output of a typical firm will ________.
rise; rise
The supply curve found by summing up the short-run supply curves of all of the firms in a perfectly competitive industry is called the:
short-run market supply curve.
If the price is less than the average variable cost at the profit-maximizing quantity of output in the short run, a perfectly competitive firm will:
shut down production.
A perfectly competitive small organic farm that produces 1,000 cauliflower heads in the short run has an ATC = $6 and AFC = $2. The market price is $3 per head and is equal to MC. In order to maximize profits (or minimize losses), this farm should:
shut down.
A monopoly can be temporary because of:
technological change.
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 higher price elasticity of demand.
Suppose that some firms in a perfectly competitive industry earn negative economic profits. In the long run:
the industry supply curve will shift to the left.
If a change in fixed cost raises average total cost above the demand curve:
the monopoly will go out of business.
Market structures are categorized by the following two criteria:
the number of firms and whether or not products are differentiated.
Public policies toward monopoly in the United States often consist of:
the regulation of natural monopolies.
A statement that best reflects an evaluation of monopoly firms is that:
they are economically inefficient.
Because monopoly firms are price-setters:
they can sell more only by lowering price.
The long-run industry supply curve:
will be more elastic than the short-run industry supply curve.
In perfect competition, a change in fixed cost:
will encourage entry or exit in the long run so that price will change enough to leave firms earning zero profits.
A perfectly competitive firm will produce:
with a loss in the short run if its price is greater than AVC but less than ATC.
If a monopolist is producing a quantity that generates MC > MR, then profit:
can be increased by decreasing production.
