Chapter 14 Module 9
The table below presents the demand schedule and marginal costs facing a monopolist producer. What is the profit-maximizing level of output? What price will the monopolist charge for the quantity in part (b)?
b. The profit-maximizing decision rule is to increase production as long as MR is > or = MC. This monopolist should produce 4 units. The marginal revenue of increasing production to 4 units is $3, while the marginal cost is $2, so it makes sense to produce the fourth unit. However, the marginal revenue of increasing to 5 units is $1, while the marginal cost is $2. The monopolist should not increase to 5 units. c. The monopolist will charge the highest price consumers are willing to pay for 4 units, which is $6 per unit.
Antitrust activities can cause inefficiencies by:
both of these statements are true breaking up a natural monopoly, creating many small firms that cannot capture available economies of scale
In some industries, competition between two or more firms simply doesn't make much sense because:
economies of scale are so powerful.
f Five Banners engages in price discrimination, the number of people visiting the park will be more than if they charged everyone the same high monopoly price; and will be the same as the socially optimal number of visitors that would happen in a perfectly competitive market.
more than the same as
What is wrong (from the perspective of Five Banners' revenue) with charging all visitors the same low admissions price?
Five Banners will get less revenue than it could have from the families, who are willing and able to pay more.
The monopolist and the perfectly competitive firm both choose to maximize profts by choosing the level of output where:
MC equals MR and price is equal to AR
The table below shows price and quantity demanded for a market in which there is a single (monopoly) firm. Calculate total, marginal, and average revenue.
MR = change in revenue/change in quantity AR = revenue/quantity
The public policies designed to mitigate the effects of monopolies are
highly debated issues
Suppose that a producer in a previously competitive market is granted the sole right to produce in the market. Given that demand in the market is unchanged, but now all consumers must purchase from the same producer, which of the following statements are correctly describing the producer before and after becoming a monopoly?
Price equals marginal revenue before becoming a monopoly, marginal revenue is less than price after becoming a monopoly, the producer will produce the output where MR = MC both before and after becoming a monopoly, the producer will produce the efficient level of output
Lisa is a self-employed physical therapist who works from a rented space. Lisa charges $250 for a therapy session. She incurred the following costs last month: space and equipment rental, $1,200; wages, $3,500; materials, $1,800. If Lisa's profit last month was $2,000, how many clients did she see?
Profit = Total revenue - Total cost $2,000 = (250 × Q) - $6,500 $8,500 = 250Q 34 = QLisa saw 34 clients.
Suppose you are advising a mayoral candidate in your town. The candidate's platform includes strong opposition to monopoly suppliers because consumer welfare is compromised by monopoly pricing. Which of the following statements would present your candidate with an alternative view about why it may make sense to tolerate the existence of some monopoly firms?
Some goods may not exist if it were not for the monopoly profits that a patent ensures to create incentives for research and development Monopolies reduce average total cost when there are very large fixed costs in production Some goods are too dangerous or important to let "just anyone " produce them
Price discrimination is only possible in a monopoly market structure Suppose you are advising Five Banners Amusement Park, which is the only such firm in the state. Two types of visitors are interested in the park: middle-class families with young kids, and teens/college students. b. What is wrong (from the perspective of Five Banners' revenue) with charging all visitors the same high admissions price?
Teens and college students would not be able to visit, even though they would have if the price was lower.
MyJoe is a producer of coffee mugs. Its marginal costs are below: Suppose that the market price of coffee mugs is $10.00. What is MyJoe's profit-maximizing quantity?
The Profit-Maximizing Quantity is where Marginal Cost = Price. 100
For a monopoly, when the price effect outweighs the quantity effect of increased production.
The demand must be price inelastic
Suppose a museum charges different entrance fees for children, students, adults, and seniors, but these groups all pay the same amount for souvenirs at the gift shop. Which of the following explains why the museum price discriminates on admission but not souvenirs?
The entrance ticket is individual, while souvenirs are transferable
The table below presents the demand schedule and marginal costs facing a monopolist producer.b. What is the profit-maximizing level of output?What price will the monopolist charge for the quantity in part (b)?
The profit-maximizing decision rule is to increase production as long as MR is > or = MC. This monopolist should produce 3 units. The marginal revenue of increasing production to 3 units is $4 and the marginal cost is $4, so it makes sense to produce 3 units. c. The monopolist will charge the highest price that consumers are willing to pay for 3 units, which is $6 per unit.
The table below presents the demand schedule and marginal costs facing a monopolist producer. What is the profit-maximizing level of output? What price will the monopolist charge for the quantity in part (b)?
The profit-maximizing decision rule is to increase production as long as MR is > or = MC. This monopolist should produce 4 units. The marginal revenue of increasing production to 4 units is $6, while the marginal cost is $5, so it makes sense to produce the 4th unit. c. The monopolist will charge the highest price consumers are willing to pay for 4 units, which is $9 per unit.
The advantages of maintaining monopolies
is a normative argument that has no right answer
For a onopolist the quantity effect
is the increase in revenues from selling a greater quantity at a lower price
A hair salon offers three services: haircuts, color treatment, and styling. The salon charges $40 for a cut, $65 for color, and $25 for styling. Last month, the salon sold 68 haircuts, 34 color treatments, and 22 styling sessions. If the salon's costs for the month totaled $2848, what was its profit?
Total revenue = (Q1 × P1) + (Q2 × P2) + ... + (Qn × Pn) Profit = Total revenue - Total cost For the hair salon, then: Profit = [(68 × $40) + (34 × $65) + (22 × $25)] - $2848 Profit = ($2720 + $2210 + $550) - $2848 Profit = $5480 - $2848 Profit = $2632
Protecting intellectual property rights
encourages research and development
The monopoly can choose any price it wants
false
The practice of charging customers different prices for the same good is called:
price discriminiation
In a monopolized market
producer surplus is higher than in a competitive market, while consumer surplus is lower
Examples of price discrimination include:
student discounts, child discounts, senior discoutns
The monopolist is always constrained by:
the amount demanders are willing to buy at any given price
An essential characterisitic of a monopoly is
the good must have no close substitutes
Diamonds are expensive because
the seller of most diamonds in the world restricts output.
Suppose a small town has one theater for live performances and several restaurants, including one Indian restaurant. We assume that it will be easier for BLANK to price-discrimination because it has BLANK
the theater, more monopoly power
Private firms seek to maximize The amount by which Total Cost rises when one more unit is produced is called the For firms in perfectly competitive markets, the amount by which the Total Revenue rises when one more unit is sold is called the BLANK and this is equal to the BLANK
total profits marginal cost marginal revenue product price
The figure below presents the demand curve, marginal revenue, marginal costs, and average total costs facing a monopolist producer. Under monopoly pricing, are profits positive, negative, or zero? If government mandates pricing such that P = ATC, profits will be Compared to a mandate where P = ATC, deadweight loss under efficient pricing will be Is this a natural monopoly
zero, smaller, negative, smaller, smaller, yes
