Econ 104 Chapter 8

If James's marginal and average cost is $8, the profit-maximizing price is $_____.

12

Based on this graph, a profit-maximizing firm in a perfectly competitive industry would produce an output of:

2000 ---- will equal marginal cost b/c perfectly competitive

If James's marginal and average costs are $10, and his firm is in a perfectly competitive industry, James's output is _____ barrels more than if the firm is a monopoly.

3

Bob, Bill, Ben, and Brad Baxter have just made a documentary movie about their basketball team. They are thinking about making the movie available for download on the Internet, and they can act as a single-price monopolist if they choose to. Each time the movie is downloaded, their Internet service provider charges them a fee of $4. The Baxter brothers are arguing about which price to charge customers per download. The accompanying table shows the demand schedule for their film.

4 dollars

If the De Beers diamond monopoly lowers the price of a diamond from $800 to $750 and sales increase from 4 to 5 diamonds, the marginal revenue of the fifth diamond is $_____.

550

If James's firm is a monopoly, consumer surplus is $_____.

8

Patents give monopoly protection for the full length of the inventor's lifetime. This statement is:

False

The fact that it is a natural monopoly is revealed by the:

downward-sloping average total cost curve.

A copyright typically gives an author the sole right to profits from his or her work for a period of 15 years. This statement is:

false

A price ceiling imposed on a natural monopoly will result in a shortage. This statement is:

false

In a monopoly market, the lost consumer surplus is less than the monopolist's gain in profit. This statement is:

false

In the long run, perfectly competitive firms earn economic profits. This statement is:

false

In the long run, the presence of network externalities and increasing returns to scale makes it more likely that an industry will be perfectly competitive. This statement is:

false

A natural monopoly:

has a declining average total cost curve.

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

market power

The automobile industry is an example of which market structure?

oligopoly

The advantage of public ownership of a monopoly is that:

prices can be set based on the criterion of efficiency.

In the United States, the Federal Trade Commission (FTC) is charged with promoting competition and challenging mergers that would likely lead to higher prices. In 1996, Staples and Office Depot, two of the largest office supply superstores, announced their agreement to merge. Critics of the merger argued that, in many parts of the country, a merger between the two companies would create a monopoly in the office supply superstore market. Based on the FTC's mission to challenge mergers that would likely lead to higher prices, do you think it allowed the merger?

quantity of output and raise prices, which would create inefficiency in the form of deadweight loss. Since the FTC is charged with challenging mergers that would likely lead to higher prices, you should think that the FTC would not allow this merger. And, in fact, in a court ruling in 1997, the FTC was able to prevent the merger.

A single-price monopolist offers its product to all consumers at the same price. This statement is:

true

In oligopoly, products may be either identical or differentiated. This statement is:

true

In order to successfully practice price discrimination, different groups of a monopolist's customers must have different sensitivities to price. This statement is:

true

The profit-maximizing level of output for a monopolist is the output that generates the greatest difference between total revenue and total cost. This statement is:

true