CLC Chapter 9 Micro

Metropolitan Power and Light is a monopoly in the electrical generation and distribution industry. If its marginal revenue equals $2 when its output is 100,000 kilowatt hours, what is its marginal cost if it is maximizing profits?

$2 (MR=MC)

Suppose that a price-discriminating monopolist faces a downward-sloping demand curve with a vertical intercept of $8. Given the firm's cost conditions, a monopolist would choose a price of $4 and sell 4 units of output to maximize profit. How much consumer surplus would be lost if the firm practiced second-degree price discrimination, selling 2 units at $6 each and then the additional 2 units at $4 each?

$4

Suppose that a price-discriminating monopolist faces a downward-sloping demand curve with a vertical intercept of $8. Given the firm's cost conditions, a monopolist would choose a price of $4 and sell 4 units of output. How much consumer surplus would be lost if the firm could practice first-degree price discrimination?

$8

What is the Herfindahl index for a monopoly?

10,000

Refer to the graph above for an industry. If the industry had a pure monopoly, the output quantity to maximize profit would be:

90

Refer to the above graph for a monopolist in short-run equilibrium. When this monopolist produces the quantity that will maximize profit or minimize loss theATC will be:

A

Refer to the above graph for a monopolist in short-run equilibrium. To maximize profit or minimize loss this monopolist will charge a price of:

B

Metropolitan Power and Light is a monopoly in the electrical generation and distribution industry. If it charges $1 per kilowatt hour, its marginal revenue could be:

$0.75

Natural monopolists usually experience:

large diseconomies of scales

Which is a characteristic of a monopoly?

sells a differentiated product

Microsoft is not a monopoly in the tablet market because:

there are close substitutes for the product or service it provides

What happens to consumer surplus when a firm engages in perfect price discrimination?

It is reduced to zero

The market price in a perfectly competitive market is $11 and 1,250 units are bought and sold. Assume the market becomes monopolized. What would you expect to happen to the number of units bought and sold?

It would fall below 1,250 units

For a competitive firm, the profit-maximizing quantity is found where marginal revenue (MR) equals marginal cost (MC). For a monopoly, the profit-maximizing quantity is where:

MR = MC

The profit maximizing level of output for a perfectly competitive firm occurs where:

MR = MC = P.

Since a monopolist faces a downward-sloping demand curve, what happens to marginal revenue as output increases?

Marginal revenue decreases

Metropolitan Power and Light is a monopoly in the electrical generation and distribution industry. In 2009, its output was at a point at which price was lower than average total cost. What happens to a monopolist in this situation?

The monopolist will operate at a loss

Which of the following is an example of price discrimination?

a car dealership where salespeople and buyers haggle over the price

The key to monopoly power is significant __________ in the industry.

barriers to entry

Bob is a self-trained painter who works near Maggie Valley, North Carolina, in the Smoky Mountains. When customers come to his studio he studies their interest and tries to gauge how much they would pay for a piece, attempting to get as much money as possible from each customer. This is an example of which type of price discrimination?

first-degree

Ken's Barber Shop has a tremendous amount of power over the market equilibrium price for haircuts in its geographic area. This means that Ken's Barber Shop:

has market power

Metropolitan Power and Light is a monopoly in the electrical generation and distribution industry. It has spent a tremendous amount of money in lobbying efforts to limit the number of permits granted for wind and solar power generators. The company fears that these generators will create competition in the market. This lobbying effort is an example of:

rent seeking

Suppose that a monopolist decides to produce and sell 10 units that can be sold in the market for $150 each. If the firm wishes to sell 11 units, it must charge $149 each. The marginal revenue from selling the 11th unit is:

$139

Refer to the graph above for an industry. If the industry had a pure monopoly, to maximize profit the product price would be:

16

Five firms comprise the entire catfish farming industry. Each firm represents the following percentage of market share: firm 1, 50%; firm 2, 25%; firm 3, 20%; firm 4, 3%; and firm 5, 2%. What is the Herfindahl-Hirschman Index (HHI) for the catfish farming industry?

3,538 (HHI is determined by summing the squares of each firm's market share)

The table shows the demand schedule facing Nina, a monopolist selling baskets. What is the change in total revenue if she lowers the price from $20 to $18?

30

Industry A is composed of four firms that hold market shares of 60, 20, 10, and 10. The Herfindahl index for this industry would be:

4200

If a firm charges customers different prices based on the amount that is being purchased this is categorized as:

Second Degree Price Discrimination

Which of the following is NOT a requirement for successful price discrimination?

Sellers must sell a product that has a high profit margin or a seller must provide a product for which there are no close substitutes

Which of the following is NOT true about the demand curve of a monopolist?

The demand curve is perfectly elastic

Refer to the above graph for a monopolist in short-run equilibrium. This firm will:

earn a loss represented by the area ADBE

Suppose that a sole producer can earn economic profits if it produces a certain output, but that the addition of a second producer would eliminate economic profits for both firms. This is a case of:

natural monopoly

Under which market structure does a firm NOT face a downward-sloping demand curve?

perfect competition

The Archer Daniels Midland Company is an enormous conglomerate that grows and produces many food products. It is sometimes called the "supermarket to the world." The company has given large donations to politicians. If these donations affect policies regarding the environment or agricultural price supports, then these financial gifts are an example of:

rent seeking

Which of the following acts is a corporation in violation of if it practices price discrimination and the discrimination's effect is to substantially lessen competition or create a monopoly?

the Clayton Act

Metropolitan Power and Light is a monopoly in the electrical generation and distribution industry. Since it does not face any competition in its industry, it has become quite lax in research and development and has not made any improvements to its efficiency. It also spends lavishly on its corporate retreats because it has a high level of guaranteed profits every year. Its actions are an example of:

x-inefficiency