Homework 8 Questions (ch 12)
Answer the question on the basis of the accompanying demand schedule faced by a monopoly firm. Price Quantity Demanded $7 1 6 2 5 3 4 4 3 5 The marginal revenue obtained from selling the fourth unit of output is
$1
A monopolistic firm has a sales schedule such that it can sell 10 prefabricated garages per week at $10,000 each, but if it restricts its output to 9 per week it can sell these at $11,000 each. The marginal revenue of the 10th unit of sales per week is
$1,000
Refer to the data for a (non price-discriminating) monopolist. At its profit-maximizing output, this firm's total costs will be
$198
Refer to the data for a (non price-discriminating) monopolist. At its profit-maximizing output, this firm's total revenue will be
$280
Answer the question on the basis of the accompanying demand schedule faced by a monopoly firm. Price Quantity Demanded $7 1 6 2 5 3 4 4 3 5 The marginal revenue obtained from selling the third unit of output is
$3
Refer to the data for a (non price-discriminating) monopolist. At its profit-maximizing output, this firm's price will exceed its marginal cost by ________ and its average total cost by ________.
$30; $20.50
Refer to the data for a (non price-discriminating) monopolist. At its profit-maximizing output, this firm's total profit will be
$82
Refer to the diagram. At the profit-maximizing level of output, total revenue will be
0AJE.
Refer to the diagram. At the profit-maximizing level of output, total cost will be
0BHE.
Refer to the data for a (non price-discriminating) monopolist. This firm will maximize its profit by producing
4 units
Which of the following is correct?
A purely competitive firm is a "price taker," while a monopolist is a "price maker."
Refer to the diagram. To maximize profits or minimize losses, this firm should produce
E units and charge price A.
Which of the following is characteristic of a pure monopolist's demand curve?
It is the same as the market demand curve.
If profits are maximized (or losses minimized), which of the following conditions is common to both unregulated monopoly and pure competition?
MR = MC
What do economies of scale, the ownership of essential raw materials, and patents have in common?
They are all barriers to entry of new firms in an industry.
Which of the following is NOT an entry barrier to new firms in a market?
X-inefficiency
Confronted with the same unit (average) cost data, a monopolistic producer will charge
a higher price and produce a smaller output than a competitive firm.
Pure monopoly market refers to
a single firm producing a product for which there are no close substitutes.
Refer to the diagram. At the profit-maximizing level of output, the firm will realize
an economic profit of ABHJ.
The firm described in the accompanying diagram is selling in
an imperfectly competitive market.
The MR = MC rule
applies both to pure monopoly and pure competition.
If a regulatory commission wants to provide a natural monopoly with a fair return on its investment, it should establish a price that is equal to
average total cost.
To practice long-run price discrimination, a monopolist must
be able to separate buyers into different markets with different price elasticities.
If a monopolist engages in price discrimination, it will
charge a higher price where buyers' demand is price inelastic and a lower price where buyers' demand is price elastic.
The economic incentive for price discrimination is based upon
differences among buyers' elasticities of demand.
Refer to the diagrams. Diagram (A) represents
equilibrium price and quantity in a purely competitive industry.
Consumers who clip and redeem discount coupons
exhibit a higher price elasticity of demand for a given product than consumers who do not clip and redeem coupons.
A purely monopoly producer (firm)
faces a downsloping market demand curve since it is the only seller in the market.
X-inefficiency refers to a situation in which a firm
fails to achieve the minimum average total costs attainable at each level of output.
Refer to the diagrams. In diagram (B) the profit-maximizing quantity is
g, and the profit-maximizing price is d.
Refer to the diagrams. The price will be ________ and the quantity will be ________ with the industry structure represented by diagram (B) compared to the one represented in (A).
higher; lower
Answer the question on the basis of the accompanying demand schedule faced by a monopoly firm. Price Quantity Demanded $7 1 6 2 5 3 4 4 3 5 At the point where 3 units are being sold, the coefficient of price elasticity of demand
is greater than unity (one).
The ability of personalized pricing by online retailers to price discriminate
is limited by buyers' willingness and ability to easily search out lower prices at other online sites.
A natural monopoly occurs when
long-run average costs decline continuously through the range of demand.
In the long run, a pure monopolist will maximize profits by producing that output at which marginal cost is equal to
marginal revenue.
The practice of price discrimination is associated with pure monopoly because
monopolists have considerable ability to control output and price.
Large minimum efficient scale of plant combined with limited market demand may lead to
natural monopoly.
At its profit-maximizing output, a pure nondiscriminating monopolist achieves
neither productive efficiency nor allocative efficiency.
Pure monopolists may obtain economic profits in the long run because
of barriers to entry of new firms in the industry.
Economic profit in the long run is
possible for a pure monopoly but not for a perfectly competitive firm.
The profit-maximizing output of a pure monopoly is not socially optimal, because in equilibrium
price exceeds marginal cost.
With respect to the pure monopolist's demand curve, it can be said that
price exceeds marginal revenue at all outputs greater than 1.
Because the monopolist's demand curve is downsloping,
price must be lowered to sell more output.
Refer to the diagrams. Firm A is a
pure competitor, and Firm B is a pure monopoly
If a monopoly is faced with competition from foreign multinational corporations or from potential new entrants, then it would probably
reduce price and raise output
Assume that the owners of the only gambling casino in Wisconsin spend large sums of money lobbying state government officials to protect their gambling monopoly. Economists refer to these expenditures as
rent-seeking.
A price discriminating pure monopolist will attempt to charge each buyer (or group of buyers)
the maximum price each would be willing to pay.
Price discrimination refers to
the selling of a given product to different customers at different prices that is not warranted due to differences in production costs
An important economic problem associated with pure monopoly is that, at the profit-maximizing outputs, resources are
underallocated because price exceeds marginal cost.
A pure monopolist
will realize an economic profit if price exceeds ATC at the profit-maximizing/loss-minimizing level of output.