TB: P&R Ch. 10

If a monopolistʹs profits were taxed away and redistributed to its consumers, A) inefficiency would remain because output would be lower than under competitive conditions. B) inefficiency would remain, but not because output would be lower than under competitive conditions. C) efficiency would be obtained because output would be increased to the competitive level. D) efficiency would be obtained because output would be increased and profits removed.

A

Refer to Figure 10.2. At output Qm, and assuming that the monopoly has set her price to maximize profit, the consumer surplus is: A) CDE. B) BDEF. C) ADEG. D) 0DEQm. E) none of the above

A

Refer to Scenario 10.2. How much profit does the monopolist earn? A) $4512.50 B) $4987.50 C) $475.00 D) $5.00

A

Refer to Scenario 10.2. Suppose that a tax of $5 for each unit produced is imposed by state government. How much profit does the monopolist earn? A) $4050 B) $4950 C) $450 D) $5

A

Refer to Scenario 10.6. If red rubber balls can be produced at any of the three plants, what is the marginal cost of 5th red rubber ball? A) 4 B) 5 C) 8 D) 20 E) none of the above

A

The __________ elastic a firmʹs demand curve, the greater its __________. A) less; monopoly power B) less; output C) more; monopoly power D) more; costs

A

The monopolist has no supply curve because A) the quantity supplied at any particular price depends on the monopolistʹs demand curve. B) the monopolistʹs marginal cost curve changes considerably over time. C) the relationship between price and quantity depends on both marginal cost and average cost. D) there is a single seller in the market. E) although there is only a single seller at the current price, it is impossible to know how many sellers would be in the market at higher prices.

A

The monopolist that maximizes profit A) imposes a cost on society because the selling price is above marginal cost. B) imposes a cost on society because the selling price is equal to marginal cost. C) does not impose a cost on society because the selling price is above marginal cost. D) does not impose a cost on society because price is equal to marginal cost.

A

Under which of the following scenarios is it most likely that monopoly power will be exhibited by firms? A) When there are few firms in the market and the demand curve faced by each firm is relatively inelastic. B) When there are many firms in the market and the demand curve faced by each firm is relatively inelastic. C) When there are few firms in the market and the demand curve faced by each firm is relatively elastic. D) When there are many firms in the market and the demand curve faced by each firm is relatively elastic.

A

What is the profit maximizing price? A) 10 B) 20 C) 3 D) 40 E) none of the above

A

Which of the following is true for a competitive buyer? A) AE = ME B) AE > ME C) AE < ME D) AE greater than or equal to ME

A

Refer to Scenario 10.2. Suppose that in addition to the tax, a business license is required to stay in business. The license costs $1000. What is the profit maximizing level of output? A) 0 B) 90 C) 95 D) 100 E) none of the above

B

Refer to Scenario 10.3. Compared to a competitive red herring industry, the monopolistic red herring industry A) produces more output at a higher price. B) produces less output at a higher price. C) produces more output at a lower price. D) produces less output at a lower price. E) not enough information to relate the monopolistic red herring industry to a competitive industry.

B

Refer to Scenario 10.3. Suppose that a tax of $5 per unit of output is imposed on red herring producers. The price of red herring will A) not change. B) increase by less than $5. C) increase by $5. D) increase by more than $5. E) decrease.

B

Refer to Scenario 10.4. Suppose that the municipal stadium authority imposes a tax of $10 per ticket on the concert promoters. Given the information above, the profit maximizing ticket price would A) increase by $10. B) increase by $5. C) not change. D) decrease by $5. E) decrease by $10.

B

Refer to Scenario 10.5. From the perspective of the firm, what is the marginal cost of the 5th garden hose? A) 4 B) 5 C) 16 D) 12 E) 8

B

Refer to Scenario 10.7. How many ink pads will be produced to maximize profit? A) 50 B) 250 C) 500 D) 800 E) none of the above

B

Refer to Scenario 10.8. Suppose that the regulatory agency sets your price where average revenue equals average cost. How much profit will Adriana make? A) She will lose money and will go out of business. B) She will break even. C) She will make a profit. D) none of the above

B

Refer to Scenario 10.8. The deadweight loss from monopoly is __________. A) 0 B) 5 C) 10 D) 25 E) none of the above

B

Refer to Scenario 10.9. At the profit maximizing level of output, what is the level of consumer surplus? A) 0 B) 1,800 C) 2,700 D) 3,600 E) 4,800

B

Refer to Scenario 10.9. What is the profit maximizing level of output? A) 0 B) 30 C) 45 D) 60 E) none of the above

B

Suppose that the competitive market for rice in Japan was suddenly monopolized. The effect of such a change would be: A) to decrease the price of rice to the Japanese people. B) to decrease the consumer surplus of Japanese rice consumers. C) to decrease the producer surplus of Japanese rice producers. D) a welfare gain for the Japanese people. E) increase the consumption of rice by the Japanese people.

B

The cartel of oil-producing nations (OPEC) once controlled about 80% of the world petroleum market, but OPECʹs market share has declined to about half of its former level. This outcome is a good example of how firms may have: A) relatively high short-run monopoly power that strengthens in the long run. B) relatively high short-run monopoly power that declines in the long run. C) relatively low short-run monopoly power that strengthens in the long run. D) relatively low short-run monopoly power that declines in the long run.

B

The firms in a market have decided not to compete with one another and have agreed to limit output and raise price. A) This practice is known as concentrating and is legal in the United States and Canada. B) This practice is known as collusion and is illegal in the United States. C) In this way firms take advantage of economies of scale. D) This is an effective barrier to entry, but is illegal in the United States.

B

The regulatory lag: A) always benefits the regulated firm. B) is likely to occur with rate-of-return regulation. C) promotes economic efficiency. D) all of the above

B

Use the following information to answer the next question: The marginal cost of a monopolist is constant and is $10. The demand curve and marginal revenue curves are given as follows: demand: Q = 100 - P marginal revenue: MR = 100 - 2Q The deadweight loss from monopoly power is __________. A) $1000.00 B) $1012.50 C) $1025.00 D) $1037.50 E) none of the above

B

Use the following two statements to answer this question: I. For a monopolist, at every output level, average revenue is equal to price. II. For a monopolist, at every output level, marginal revenue is equal to price. A) Both I and II are true. B) I is true, and II is false. C) I is false, and II is true. D) Both I and II are false. E) Statements I and II could either be true or false depending upon demand.

B

Which of the following statements about natural monopolies is true? A) Natural monopolies are only found in the markets for natural resources (like crude oil and coal). B) For natural monopolies, marginal cost is always below average cost. C) For natural monopolies, average cost is always increasing. D) Natural monopolies cannot be regulated

B

With respect to monopolies, deadweight loss refers to the A) socially unproductive amounts of money spent to obtain or acquire a monopoly. B) net loss in consumer and producer surplus due to a monopolistʹs pricing strategy/policy. C) lost consumer surplus from monopolistic pricing. D) none of the above

B

Unlike a competitive buyer, A) a monopsonist faces an upward-sloping industry supply curve. B) a monopsonist pays a different price for each unit purchased. C) a monopsonist sets marginal value equal to marginal expenditure. D) the price that a monopsonist pays depends on the number of units purchased.

D

When a drug company develops a new drug it is granted a __________ making it illegal for other firms to enter the market until the __________ expires. A) franchise; franchise B) copyright; copyright C) government license; government license D) patent; patent

D

When a per unit tax is imposed on the sale of a product of a monopolist, the resulting price increase will A) always be less than the tax. B) always be more than the tax. C) always be less than if a similar tax were imposed on firms in a competitive market. D) not always be less than the tax.

D

How much profit will the monopolist whose cost and demand curves are shown below earn at output Q1? A) 0CDQ1 B) 0BEQ1 C) 0AFQ1 D) ACDF E) BCDE

E

Refer to Figure 10.3. What price will the monopsonist pay when maximizing profit? A) P1 B) P2 C) P3 D) P4 E) P5

E

To find the profit maximizing level of output, a firm finds the output level where A) price equals marginal cost. B) marginal revenue and average total cost. C) price equals marginal revenue. D) all of the above E) none of the above

E

Which of the following is NOT true for monopoly? A) The profit maximizing output is the one at which marginal revenue and marginal cost are equal. B) Average revenue equals price. C) The profit maximizing output is the one at which the difference between total revenue and total cost is largest. D) The monopolistʹs demand curve is the same as the market demand curve. E) At the profit maximizing output, price equals marginal cost.

E

Refer to Figure 10.1. The minimum feasible price is __________. A) P1 B) P2 C) P3 D) P4 E) none of the above

C

Refer to Figure 10.3. What quantity will the monopsonist purchase to maximize profit? A) Q1 B) Q2 C) Q3 D) Q4 E) none of the above

C

Refer to Scenario 10.1. How much profit will she make? A) -996 B) 0 C) 1,296 D) 1,568 E) none of the above

C

Refer to Scenario 10.2. Suppose that a tax of $5 for each unit produced is imposed by state government. What is the profit maximizing price? A) $90.00 B) $10.00 C) $55.00 D) $52.50

C

Refer to Scenario 10.2. What is the profit maximizing level of output? A) 0 B) 90 C) 95 D) 100 E) none of the above

C

Refer to Scenario 10.2. What is the profit maximizing price? A) $95.00 B) $5.00 C) $52.50 D) $10.00

C

Refer to Scenario 10.3. The marginal cost of red herrings is given as: MC = 0.6Q. What is the profit-maximizing level of output? A) 0 B) 25 C) 50 D) 60 E) 125

C

Refer to Scenario 10.5. How many garden hoses should be produced in California in order to maximize profits? A) 1 B) 2 C) 3 D) 4 E) 5

C

Refer to Scenario 10.6. If red rubber balls can be produced at any of the three plants, and John decides to produce 1 red rubber ball, at which plant will he produce it? A) California B) Florida C) Montana D) He is indifferent between California and Florida. E) He is indifferent between Florida and Montana.

C

Refer to Scenario 10.7. Suppose that the firm chooses to produce 200 ink pads. At this level of output the demand for ink pads is A) inelastic. B) unit elastic. C) elastic. D) unit elastic

C

Refer to Scenario 10.9. At the profit maximizing level of output, what is the deadweight loss? A) 0 B) 450 C) 900 D) 1,800 E) none of the above

C

Refer to Scenario 10.9. At the profit maximizing level of output, what is the level of producer surplus? A) 0 B) 1,800 C) 5,400 D) 7,200 E) 9,600

C

Refer to Scenario 10.9. What level of output maximizes the sum of consumer surplus and producer surplus? A) 0 B) 30 C) 45 D) 60 E) none of the above

C

Roaring Lion Studios can produce DVDs at a constant marginal cost of $5 per disk, and the studio has just releasing the DVD for its latest hit film, Ernest Goes to the Hamptons. The retail price of the DVD is $25, and the elasticity of demand for this film is -2. Has the studio selected the profit-maximizing retail price for this DVD? A) Yes B) No, the retail price is too low C) No, the retail price is too high D) We do not have enough information to answer this question

C

Suppose there are seven firms in a market where the three largest firms supply 20% of the market-clearing quantity and the other four firms supply 10% of the market-clearing quantity. What is the five-firm concentration ratio (i.e., the share of total sales controlled by the five largest firms in the market)? A) 60% B) 70% C) 80% D) 90%

C

The situation in which buyers are able to affect the price of a good is referred to as __________ power. A) monopoly B) purchasing C) monopsony D) countervailing

C

When the demand curve is downward sloping, marginal revenue is A) equal to price. B) equal to average revenue. C) less than price. D) more than price.

C

Which factors determine the firmʹs elasticity of demand? A) Elasticity of market demand and number of firms B) Number of firms and the nature of interaction among firms C) Elasticity of market demand, number of firms, and the nature of interaction among firms D) none of the above

C

Which of the following is NOT associated with a high degree of monopoly power? A) A relatively inelastic demand curve for the firm B) A small number of firms in the market C) Significant price competition among firms in the market D) Significant barriers to entry

C

Which of the following is NOT true regarding monopoly? A) Monopoly is the sole producer in the market. B) Monopoly price is determined from the demand curve. C) Monopolist can charge as high a price as it likes. D) Monopoly demand curve is downward sloping.

C

Which of the following is true at the output level where P=MC? A) The monopolist is maximizing profit. B) The monopolist is not maximizing profit and should increase output. C) The monopolist is not maximizing profit and should decrease output. D) The monopolist is earning a positive profit.

C

Which of the following is true when the government imposes a price ceiling on a monopolist? A) Marginal revenue becomes horizontal. B) Marginal revenue is linear. C) Marginal revenue is kinkedhorizontal and then downward sloping. D) Marginal revenue is kinkeddownward sloping and then horizontal

C

Refer to Scenario 10.2. Suppose that a tax of $5 for each unit produced is imposed by state government. What is the profit maximizing level of output? A) 0 B) 90 C) 95 D) 100 E) none of the above

B

For a monopsony buyer, the marginal expenditure per unit of an input A) exceeds the average expenditure per unit. B) is less than the average expenditure per unit. C) equals the average expenditure per unit. D) any of the above could be true.

A

For the monopolist shown below, the profit maximizing level of output is: A) Q1. B) Q2. C) Q3. D) Q4. E) Q5.

A

Refer to Figure 10.1. If the monopolist is not regulated, the price will be set at __________. A) P1 B) P2 C) P3 D) P4 E) none of the above

B

Refer to Figure 10.2. In moving from the competitive level of output and price to the monopoly level of output and price, the deadweight loss is the area: A) QmEHQc. B) GEH. C) GFH. D) FEH. E) none of the above

B

Refer to Scenario 10.2. Suppose that in addition to the tax, a business license is required to stay in business. The license costs $1000. What happens to profit? A) It increases by $1000. B) It decreases by $1000. C) It decreases by less than $1000. D) It stays the same.

B

Refer to Figure 10.2. In moving from the competitive level of output and price to the monopoly level of output and price, the monopolist is able to add to producer surplus: A) the area BCEF. B) the area BCEF less the area GFH. C) the area BCEH. D) the area BCEH less the area GFH. E) none of the above

B

Refer to Scenario 10.1. The price of her product will be ________. A) 4 B) 22 C) 32 D) 42 E) 72

B

A monopolist has determined that at the current level of output the price elasticity of demand is -0.15. Which of the following statements is true? A) The firm should cut output. B) This is typical for a monopolist; output should not be altered. C) The firm should increase output. D) None of the above is necessarily correct.

A

A monopsonist will buy __________ units of input than a competitor, and will pay __________ per unit. A) fewer; less B) more; less C) fewer; more D) more; more

A

After the imposition of a tax of $2 per unit of output, what is the profit maximizing price? A) 11 B) 21 C) 31 D) 41 E) none of the above

A

Assume that a firmʹs marginal cost is $10 and the elasticity of demand is -2. We can conclude that the firmʹs profit maximizing price is approximately A) $20. B) $5. C) $10. D) The answer cannot be determined without additional information.

A

A monopolist has equated marginal revenue to zero. The firm has: A) maximized profit. B) maximized revenue. C) minimized cost. D) minimized profit.

B

A multiplant firm has equated marginal costs at each plant. By doing this A) profits are maximized. B) costs are minimized given the level of output. C) revenues are maximized given the level of output. D) none of the above

B

Assume that a profit maximizing monopolist is producing a quantity such that marginal revenue exceeds marginal cost. We can conclude that the A) firm is maximizing profit. B) firmʹs output is smaller than the profit maximizing quantity. C) firmʹs output is larger than the profit maximizing quantity. D) firmʹs output does not maximize profit, but we cannot conclude whether the output is too large or too small.

B

DVDs can be produced at a constant marginal cost, and Roaring Lion Studios is releasing the DVDs for its last two major films. The DVD for Rambeau 17 is priced at $20 per disk, and the DVD for Schreck 10 is priced at $30 per disk. If the Lerner indices for Rambeau 17 divided by the Lerner index for Schreck 10 equals 0.5, what is the constant marginal cost of producing both DVDs? A) MC = $10 B) MC = $15 C) MC = $20 D) MC = $5

B

If a monopolist sets her output such that marginal revenue, marginal cost and average total cost are equal, economic profit must be: A) negative. B) positive. C) zero. D) indeterminate from the given information.

B

A monopolist has set her level of output to maximize profit. The firmʹs marginal revenue is $20, and the price elasticity of demand is -2.0. The firmʹs profit maximizing price is approximately: A) $0 B) $20 C) $40 D) $10 E) This problem cannot be answered without knowing the marginal cost.

C

A multiplant monopolist can produce her output in either of two plants. Having sold all of her output she discovers that the marginal cost in plant 1 is $30 while the marginal cost in plant 2 is $20. To maximize profits the firm will A) produce more output in plant 1 and less in the plant 2. B) do nothing until it acquires more information on revenues. C) produce less output in plant 1 and more in plant 2. D) produce less in both plants until marginal revenue is zero. E) shut down plant 1 and only produce at plant 2 in the future.

C

As the manager of a firm you calculate the marginal revenue is $152 and marginal cost is $200. You should A) expand output. B) do nothing without information about your fixed costs. C) reduce output until marginal revenue equals marginal cost. D) expand output until marginal revenue equals zero. E) reduce output beyond the level where marginal revenue equals zero.

C

Compared to the equilibrium price and quantity sold in a competitive market, a monopolist will charge a __________ price and sell a __________ quantity. A) higher; larger B) lower; larger C) higher; smaller D) lower; smaller E) none of these

C

DVDs can be produced at a constant marginal cost of $10 per disk, and Roaring Lion Studios is releasing the DVDs for its last two major films. The DVD for Rambeau 17 is priced at $20 per disk, and the DVD for Schreck 10 is priced at $30 per disk. What are the Lerner indices for these two movies? A) Both equal one. B) 2 and 3, respectively C) 0.5 and 0.67, respectively D) 1 and 2, respectively

C

DVDs can be produced at a constant marginal cost of $5 per disk, and Roaring Lion Studios is releasing the DVDs for its last two major films. The DVD for Rambeau 17 is priced at $20 per disk, and the DVD for Schreck 10 is priced at $30 per disk. What are the price elasticities of demand for these two movies? A) Both equal -1.2. B) -0.75 and -5/6, respectively C) -1.33 and -1.2, respectively D) -1.33 and -2, respectively

C

For a competitive buyer, the marginal expenditure per unit of an input A) exceeds the average expenditure per unit. B) is less than the average expenditure per unit. C) equals the average expenditure per unit. D) any of the above could be true.

C

For a monopolist, changes in demand will lead to changes in A) price with no change in output. B) output with no change in price. C) both price and quantity. D) any of the above can be true.

C

If the regulatory agency sets a price where AR = AC for a natural monopoly, output will be A) equal to the competitive level. B) equal to the monopoly profit maximizing level. C) greater than the monopoly profit maximizing level and less than the competitive level. D) greater than the competitive level

C

A manufacturer of digital music players uses a proprietary file format that is not used by the other firms in the market. This action by the firm may be an example of using a __________ to reduce the number of firms in the market and to maintain a relatively inelastic demand for its products. A) natural monopoly B) positive externality C) subsidy D) barrier to entry

D

At the profit-maximizing level of output, demand is A) completely inelastic. B) inelastic, but not completely inelastic. C) unit elastic. D) elastic, but not infinitely elastic. E) infinitely elastic.

D

Deadweight loss from monopoly power is expressed on a graph as the area between the A) competitive price and the average revenue curve bounded by the quantities produced by the competitive and monopoly markets. B) competitive price line and the marginal cost curve bounded by the quantities produced by competitive and monopoly markets. C) competitive price line and the monopoly price line bounded by zero output and the output chosen by the monopolist. D) average revenue curve and the marginal cost curve bounded by the quantities produced by competitive and monopoly markets.

D

Monopoly power results from the ability to A) set price equal to marginal cost. B) equate marginal cost to marginal revenue. C) set price above average variable cost. D) set price above marginal cost.

D

Refer to Figure 10.1. Suppose that the government decides to limit monopoly power with price regulation. If the government sets the price at the competitive level, it will set the price at __________. A) P1 B) P2 C) P3 D) P4 E) none of the above

D

Refer to Scenario 10.1. How much output will Barbara produce? A) 0 B) 22 C) 56 D) 72 E) none of the above

D

Refer to Scenario 10.2. What level of output maximizes total revenue? A) 0 B) 90 C) 95 D) 100 E) none of the above

D

Refer to Scenario 10.3. At the profit-maximizing level of output, demand is A) completely inelastic. B) inelastic, but not completely inelastic. C) unit elastic. D) elastic, but not infinitely elastic. E) infinitely elastic.

D

Refer to Scenario 10.3. What level of output maximizes revenue? A) 0 B) 45 C) 85 D) 125 E) 245

D

Refer to Scenario 10.4. Given the information above, what are the profit maximizing number of tickets sold and the price of tickets? A) 0, $60 B) 20,000, $50 C) 40,000, $40 D) 60,000, $30 E) 80,000, $20

D

Refer to Scenario 10.7. How many ink pads will be produced to maximize revenue? A) 0 B) 250 C) 300 D) 500 E) none of the above

D

Suppose that a firm can produce its output at either of two plants. If profits are maximized, which of the following statements is true? A) The marginal cost at the first plant must equal marginal revenue. B) The marginal cost at the second plant must equal marginal revenue. C) The marginal cost at the two plants must be equal. D) all of the above E) none of the above

D

Suppose that a tax of $2 per unit of output is imposed on red rubber ball producers. What level of output maximizes profit? A) -1 B) 3 C) 4.5 D) 5 E) B, C, and D are correct

D

The demand curve and marginal revenue curve for red rubber balls are given as follows: Q = 16 - P MR = 16 - 2Q What level of output maximizes profit? A) 0 B) 4 C) 5.5 D) 6 E) B, C and D all maximize profit.

D

The marginal cost of a monopolist is constant and is $10. The marginal revenue curve is given as follows: MR = 100 - 2Q The profit maximizing price is A) $70. B) $65. C) $60. D) $55. E) $50.

D

The monopoly supply curve is the A) same as the competitive market supply curve. B) portion of marginal costs curve where marginal costs exceed the minimum value of average variable costs. C) result of market power and production costs. D) none of the above

D