Ch. 9 Monopoly

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

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

Mr. Porter sells 10 bottles of champagne per week at $50 per bottle. He can sell 11 bottles per week if he lowers the price to $45 per bottle. The quantity and the price effects on total revenue would be, respectively, an increase of _____ and a decrease of _____.

$45; $50

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 deadweight loss when the monopolist maximizes profit?

$80

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 only charge $20,000 each. The price effect of selling the sixth motor home is:

-$5,000

Look at the figure A Profit-Maximizing Monopoly Firm. This firm's profit per unit is:

$12

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

Which of the following statements concerning monopoly is TRUE

A monopoly has no rivals

. Which of the following is TRUE?

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 in the long run because the monopoly produces more and charges a higher price than a comparable perfectly competitive industry

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

Which of the following is NOT an example of price discrimination?

a Fourth of July sale

Natural monopolies are likely to include all of the following EXCEPT:

a diamond mining company

Conditions that keep new firms out of a monopoly market are:

barriers to entry

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

Which of the following is (are) barrier(s) to entry?

control of scarce resources. economies of scale, and patents and copyrights

If the government allowed only one airline to serve the entire U.S. market, there would be a _____ loss associated with _____ efficiency in the airline industry.

deadweight; reduced

The demand curve facing a monopolist is:

down-sloping

One of the major differences between a monopolist and a purely competitive firm is that the monopolist has a _____ demand curve, while the purely competitive firm has a _____ demand curve.

down-ward sloping; perfectly elastic

The large barriers to entry are a reason a monopoly:

earns an economic profit in the long run

Suppose that you build a new jumbo jet that can carry five times more passengers than any other competitor. You have high fixed costs due to the quantity of capital used to build the jets, and average cost is decreasing for all levels of demand. In this case, your monopoly would result from:

economies of scale

De Beers became a monopoly by:

establishing control over diamond mines

If you had a license for the exclusive right to sell breakfast bagels in your community, your monopoly would result from:

government-set barries

A natural monopoly exists whenever a single firm:

has economies of scale over the entire range of production that is relevant to its market

Price discrimination leads to a _____ price for consumers with a _____ demand.

higher; less elastic

One government policy for dealing with natural monopoly is to:

impose a price ceiling to reduce economic profit

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

increase profits

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 marginal cost by _____ price and _____ output.

increasing; decreasing

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

increasing; increasing

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 _____ demand for swimming at the pool than residents.

less elastic

A community college charges lower tuition fees to town residents than to nonresidents. This pricing strategy increases the profits of the community college. Using this information, we can conclude that nonresidents must have a _____ demand for attending the community college than residents.

less price-elastic

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

less; more

The ability of a monopolist to raise the price of a product above the competitive level by reducing the output is known as:

market power

In contrast with perfect competition, a monopolist:

may have economic profits in the long run

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

Most electric, gas, and water companies are examples of:

natural monopolies

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

Market structures are categorized by:

the number of firms and whether products are differentiated

Look at the table Prices and Demand. Professor Dumbledore has a monopoly on magic hats. The marginal cost of producing a hat is $18. Suppose Dumbledore can perfectly price-discriminate. How many hats will he produce?

6

Which of the following statements about monopoly equilibrium and perfectly competitive equilibrium is INCORRECT?

In the long run, economic profits are driven to zero both in monopoly and a perfectly competitive market

Which of the following is TRUE?

MR=MC is a profit-maximizing rule for any firm