Econ 202 Chapter 15

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A monopolist maximizes profits by

producing an output level where marginal revenue equals marginal cost.

Price discrimination is the business practice of

selling the same good at different prices to different customers.

Which of the following is an example of public ownership of a monopoly?

U.S. Postal Service

In order to sell more of its product, a monopolist must

lower its price

Suppose a monopolist has a demand curve that can be expressed as P=90-Q. The monopolist's marginal revenue curve can be expressed as MR=90-2Q. The monopolist has constant marginal costs and average total costs of $10. The profit-maximizing monopolist will earn profits of

$1,600

A monopoly firm maximizes its profit by producing Q = 500 units of output. At that level of output, its marginal revenue is $30, its average revenue is $60, and its average total cost is $34. At Q = 500, the firm's total revenue is

$30,000

A monopoly firm maximizes its profit by producing Q = 500 units of output. At that level of output, its marginal revenue is $30, its average revenue is $60, and its average total cost is $34. The firm's profit-maximizing price is

$60

Suppose executives at an art museum know that 100 adults are willing to pay $12 for admission to the museum on a weekday. Suppose the executives also know that 200 students are willing to pay $8 for admission on a weekday. The cost of operating the museum on a weekday is $2,000. How much profit will the museum earn if it engages in price discrimination?

$800

Consider a local, privately-owned electrical cooperative named Poweshiek Power Company (PPCo). PPCo has just completed a clean-coal-burning electrical power plant in Iowa. Currently, PPCo can meet the electricity needs of all residents in the county. In fact, its capacity far exceeds the needs of the county. After just a few years of operation, the shareholders of PPCo experienced incredibly high rates of return on their investment due to the profitability of the corporation. Which of the following statements is most likely to be true? (i) New entrants to the market know they will have a smaller market share than PPCo currently has. (ii) PPCo is a natural monopoly. (iii) PPCo would experience higher profits if it were government-run.

(i) and (ii) only

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

An ice cream parlor charges a higher price for ice cream than for sherbet

Which of the following statements is not correct?

Antitrust laws automatically prevent mergers between companies that produce similar products

How does a competitive market compare to a monopoly that engages in perfect price discrimination?

In both cases, total social welfare is the same

Monopoly pricing prevents some mutually beneficial trades from taking place. These unrealized, mutually beneficial trades are

a deadweight loss to society

Patents, copyrights, and trademarks

are examples of government-created monopolies. are examples of barriers to entry allow their owners to charge higher prices

Which of the following strategies is not an effective strategy to reduce monopoly inefficiency

breaking up a natural monopoly into more than one firm

A patent gives the inventor monopoly control over the patented good. Patents also

create incentives to develop new products

One method used to control the ability of firms to capture monopoly profit in the United States is through

enforcement of antitrust laws.

A monopolist's profits with price discrimination will be

higher than if the firm charged just one price because the firm will capture more consumer surplus.

Drug companies are allowed to be monopolists in the drugs they discover in order to

increase the availability of expensive but useful medications. increase the overall welfare of society through better health because drug companies continually produce better medications encourage research.

Because monopoly firms do not have to compete with other firms, the outcome in a market with a monopoly

is often not in the best interest of society


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