econ chap. 13

(Figure: Paint Market 2) What is the deadweight loss (if any) from the monopoly in this diagram relative to its optimum quantity? A) $125,000 B) $250,000 C) $300,000 D) No deadweight loss

A) $125,000

Rex Pharma produces anti-acid medication that is sold in a monopoly market. ' Rex Pharma sells 10,000,000 pills for $12.50 per pill. If the pills were sold for the marginal cost of production of $0.50, Rex Pharma would be able to sell 25,000,000 pills. What is the deadweight loss of this monopoly market? A) $90,000,000 B) $120,000,0 00 C) $5,000,000 D) $12,500,000

A) $90,000,000

A monopolist sells in two different markets and charges the same price of $10 in both markets. In Market A, the demand curve is described by Qd = 50 - 2P. In Market B, the demand curve is described by Qd = 60 - P. If the monopolist lowers prices by $1 in the market with the more elastic demand and raises prices by $1 in the market with the more inelastic demand curve, by how much does its total revenue change? A) -$27 B) $459 C) $767 D) $308

A) -$27

If the Bill and Melinda Gates Foundation were to buy out and destroy the patent for Combivir, which of the following would NOT be one of the effects? A) Drug companies would have no incentive to create new and better drugs. B) The price of Combivir would fall. C) The number of people treated with Combivir would rise. D) No one would have a monopoly on Combivir.

A) Drug companies would have no incentive to create new and better drugs.

Which statement is TRUE? A) If the monopolist's marginal revenue is greater than its marginal cost, the monopolist can increase profit by selling more units at a lower price per unit. B) If the monopolist's marginal revenue is greater than its marginal cost, the monopolist can increase profit by selling fewer units at a higher price per unit. C) When a monopolist produces where MR < MC it always earns a positive economic profit. D) A monopolist is guaranteed monopoly profits by the government.

A) If the monopolist's marginal revenue is greater than its marginal cost, the monopolist can increase profit by selling more units at a lower price per unit.

If the monopolist's demand is given by P = 100 - Q, marginal revenue is given by: A) MR = 100 - 2Q. B) MR = 100 - Q. C) MR = 100Q. D) MR = 100Q - Q 2 .

A) MR = 100 - 2Q.

When a regulated monopolist maximizes consumer surplus, it produces at an optimal Q where: A) P = MC. B) MR = MC. C) D = AC. D) AR = AC.

A) P = MC.

California's electricity crisis as illustrated in the chapter is partially explained by the fact that generators of electric power: A) gain market power when demand increases. B) gain market power when supply increases. C) gain market power when demand decreases. D) lose market power when demand increases.

A) gain market power when demand increases.

With health insurance, medical treatments are often paid by someone other than the patient, which will make consumers with serious diseases relatively: A) insensitive to the price of pharmaceuticals. B) sensitive to the price of pharmaceuticals. C) insensitive to the premium of health insurance. D) sensitive to the premium of health insurance.

A) insensitive to the price of pharmaceuticals.

Generating electricity: A) no longer requires a natural monopoly, but the transmission and distribution of electricity remains a natural monopoly. B) requires a natural monopoly, along with the transmission and distribution of electricity. C) requires a natural monopoly but not the transmission and distribution of electricity. D) and the transmission and distribution of electricity are no longer natural monopolies.

A) no longer requires a natural monopoly, but the transmission and distribution of electricity remains a natural monopoly.

(Figure: Regulated versus Unregulated Monopolist) Refer to the figure. Calculate the change in consumer surplus from an unregulated monopoly to a regulated monopoly. A) $6,400 B) $2,800 C) $400 D) $3,600

B) $2,800

GlaxoSmithKline (GSK) maximizes profit by producing a quantity of 800 pills where marginal cost is $2 and average cost is $4. Consumers are willing to pay as much as $10 per pill when the quantity supplied is 800 pills. What is the maximum amount of profit that GSK can earn under these conditions? A) $3,200 B) $4,800 C) $6,400 D) $8,000

B) $4,800

Figure: Monopoly Profits) Refer to the figure. The monopolist earns a profit of: A) $630. B) $420. C) $540. D) $480.

B) $420.

Which of the following statements is TRUE? I. The deadweight loss from a monopoly refers to the loss in consumer surplus that is captured by the monopolist as profit. II. According to theory, if the government sets a natural monopolist's price equal to marginal cost, the socially optimum quantity of output will result. III. Deregulation of cable television caused higher prices and fewer programming choices for customers. A) I only B) II only C) I and III only D) I, II, and III

B) II only

'When a single firm can supply the entire market at a lower cost than two or more firms, the firm can be said to have which of the following characteristics? A) It must be producing at the socially optimal level of output. B) It is a natural monopoly. C) The marginal cost curve rises at an increasing rate. D) It is one of two firms in the industry.

B) It is a natural monopoly.

Which of the following statements is TRUE? A) Market power is the ability to raise price and sell more units of a good. B) Market power may result from government regulations or patent protection. C) A monopoly is a firm without market power. D) All of the answers are correct.

B) Market power may result from government regulations or patent protection.

Figure: Monopolist 4 What is the profit-maximizing price and output level for the monopolist in this figure? A) P = $8; Q = 6 B) P = $14; Q = 6 C) P = $8; Q = 12 D) P = $10; Q = 10

B) P = $14; Q = 6

Which of the following is monopolies? A) MR > D B) P > MR C) P > AC D) TR < TC

B) P > MR

Which of the following correctly defines a monopoly that arises from economies of scale? A) a single firm operating in a market B) a single firm that can supply the market at a lower cost than two or more firms C) a single firm that controls the production of a natural resource D) a single firm that produces the efficient and socially optimal quantity in a market

B) a single firm that can supply the market at a lower cost than two or more firms

Figure: Monopoly Markup Refer to the figure. The monopolist's price markup is: A) a - b. B) b - d. C) d. D) a - d.

B) b - d.

Monopolies will have more market power when one firm owns an input that is difficult to duplicate and the: A) demand for the product is elastic. B) demand for the product is inelastic. C) supply of the product is elastic. D) supply of the product is inelastic.

B) demand for the product is inelastic.

Deregulation of cable TV rates led to: A) lower prices and better service. B) higher prices, more stations, and better quality programming. C) lower prices, fewer stations, and lower quality programming. D) the proliferation of amateur programming.

B) higher prices, more stations, and better quality programming.

A monopolist can raise its price further above marginal cost, the more ______ is the ______ for its product. A) elastic; demand B) inelastic; demand C) elastic; supply D) inelastic; supply

B) inelastic; demand

To maximize profit, the monopolist increases output: A) until it is using full manufacturing capacity. B) until marginal cost is equal to marginal revenue. C) to the same amount it would produce if the firm was competitive, but maximizes price. D) as long as the marginal revenue curve is higher than the demand curve.

B) until marginal cost is equal to marginal revenue.

A monopoly is able to increase the markup of price over marginal cost: A) when the demand is more price-elastic. B) when the demand is less price-elastic. C) when there is more marginal revenue per unit sold. D) at will regardless of price-elasticity.

B) when the demand is less price-elastic.

Figure: Monopolist 5 In these figures, the markup of price over marginal cost for the relatively inelastic demand is ______, and the markup of price over marginal cost for the relatively elastic demand is ______. A) $10; $2 B) $15; $7.50 C) $7.50; $3 D) $5; $1

C) $7.50; $3

Which one of the following statements is correct? A) Patents are one way of preventing a monopoly. B) If pharmaceutical patents are enforced, the number of new drugs will decrease. C) Monopoly profit encourages firms to research and develop new drugs. D) Competition creates incentives for the invention of new drugs.

C) Monopoly profit encourages firms to research and develop new drugs.

Typical evidence for the existence of market power would be market prices: A) below production costs. B) equal to production costs. C) above production costs. D) varying with market supply and demand conditions.

C) above production costs.

A firm with monopoly power is able to set a markup price that is: A) lower than prices on similar goods sold by competitive firms. B) the same as the prices on similar goods sold by competitive firms. C) higher than prices on similar goods sold by competitive firms. D) the maximum price all market participants will pay for similar goods.

C) higher than prices on similar goods sold by competitive firms.

Refer to the table. When this monopolist is producing 9 units,: A) its marginal cost is below the marginal revenue level. B) its average revenue is greater than the price it receives for the product. C) it could increase its profit by raising the price and selling fewer units. D) it is producing at the socially optimal level.

C) it could increase its profit by raising the price and selling fewer units.

When comparing a monopoly with a competitive industry, monopoly quantity: A) and monopoly price will be lower than that of a competitive firm. B) will be higher, and monopoly price will be lower, than that of a competitive firm. C) will be lower, and monopoly price will be higher, than that of a competitive firm. D) and monopoly price will be higher than that of a competitive firm.

C) will be lower, and monopoly price will be higher, than that of a competitive firm.

(Figure: Regulated versus Unregulated Monopolist) Refer to the figure. Calculate the deadweight loss when this monopoly is unregulated. A) $6,400 B) $2,800 C) $850 D) $400

D) $400

Figure: Monopoly 7 Under Michael Kremer's patent-buyout proposal, the government would buy the rights to the firm in this figure's patent for at least: A) $30. B) $40. C) $10. D) $50.

D) $50.

Suppose that the government decided to reduce pharmaceutical patent protection by requiring companies to sell their drugs at marginal cost. What are the likely consequences of such a policy? A) There would be an increase in consumer surplus. B) The deadweight loss in the market would decline. C) The future supply of new drugs would decrease. D) All of these statements are correct.

D) All of these statements are correct.

A monopolist increased output by 100 units but cut prices by $20 to sell this additional output at $1,000 per unit. What is TRUE about marginal revenue? A) MR totals $2,000. B) MR totals $100,000. C) MR totals -$2,000. D) MR cannot be calculated with the information given.

D) MR cannot be calculated with the information given.

Which of the following is an example of a good with economies of scale? A) fish oil pills sold in bulk B) laptops with Internet access C) dog grooming D) autos

D) autos

When demand is inelastic, revenues increase and production costs decrease as the quantity produced declines, total profits will always increase with a higher price. Therefore, monopolists: A) can't exist. B) can't exist for industries in which demand is relatively inelastic. C) can't maximize profits if they face a relatively inelastic demand. D) will always raise their price until they get to an elastic portion of the demand curve.

D) will always raise their price until they get to an elastic portion of the demand curve.