ECO 3301

A monopolist has set her level of output to maximize profit. The firm's marginal revenue is $20, and the price elasticity of demand is -2.0. The firm's prot maximizing price is approximately:

$40

You produce stereo computers for sale in two markets, foreign and domestic, and the two groups of consumers cannot trade with one another. If your firm practices third degree price discrimination to maximize profits, the marginal revenue

- in the foreign market it will equal marginal cost - in the domestic market it will equal marginal cost - in the domestic market will equal the marginal revenue in the domestic market.

What characteristic of monopolistic competition may help to offset the inefficiency of this market structure?

Consumers value the product diversity that allows them to choose from a wide variety of differentiated products.

Compared to the equilibrium price and quantity sold in a competitive market, a monopolist will charge a ________ price and sell a ________ quantity.

Higher, lower

What is the one difference between the Cournot and Stackelberg models?

In Cournot, both firms make output decisions simultaneously, and in Stackelberg, one firm sets its output level first.

MR=?

MR = Demand curve with same intercept and double the slope

A Firm sells an identical product to two groups of consumers, A an dB. The firm has decided that third degree price discrimination is feasible and wishes to set prices that maximize profits. Which of the following best describes the price output strategy that will maximize profits?

MRa = MRb = MC

Which of the following is true when the government imposes a price ceiling on a monopolist?

Marginal revenue is kinked horizontal and then downward sloping.

Rule of Thumb Pricing

P= MC/(1+1/Ed)

An electric power company uses block pricing for electricity sales. Block pricing is an example of

Second-Degree Price Discrimination

How is monopolistic competition similar to perfect competition? To what extent is it different from perfect competition?

Similar: entry by new firms is not restricted, many firms Different: products sold are differentiated, each firm sells a brand or version of the product that differs in quality or appearance or reputation; each firm is the sole producer of its own brand.

A tennis pro charges $15 per hour for tennis lessons for children and $30 per hour for tennis lessons for adults. The tennis pro is practicing

Third-Degree Price Discrimination

How can you measure monopoly power?

elasticity of demand of a firm

When a firm charges each customer the maximum price that the customer is willing to pay, the firm

engages in First Degree Price Discrimination, or Perfect Price Discrimination

Which statement most nearly describes a Nash Equilibrium applied to price competition?

given the prices chosen by its competitors, no firm has an incentive to change their prices from the equilibrium level.

A Third-degree price discriminating monopolist can sell its output either in the local market or an internet auction site (or both). After selling all of its output, the firm discovers that the marginal revenue earned in the local market was $20 while its marginal revenue on the internet auction site was $30. To maximize profits the firm should

have sold less output in the local market, and more output on the internet auction site.

The ________ elastic a firm's demand curve, the greater its ________.

lower, monopoly power

When a per unit tax is imposed on the sale of a product of a monopolist, the resulting price increase will

not always be less than the tax

in comparing the cornet equilibrium with the competitive equilibrium

profit is higher, and output is lower in Cournot

As the manager of a firm you calculate the marginal revenue is $152 and marginal ost is $200. You should

reduce output until marginal revenue equals marginal cost

Which of the following is true at the output level where P=MC?

the monopolist is not maximizing profit and should decrease output.

In the Cournot duopoly model, each firm assumes that

the output level of its rival is fixed

Which of the following is true for both perfect and monopolistic competition?

there is freedom of entry and exit in the long run

In the Stackelberg model, there is an advantage

to being the first competitor to commit to an output level

Define Nash Equilibrium

when each player is doing the best it can given the actions of its opponents. In Oligopolistic market each firm will want to do the best they can given what its competitors are doing.