Chapter 13: Monopoly Study Plan Problems

1. Substitutes for the U.S. Postal Service include​ ______. Substitutes for LIPITOR include​ ______.

FedEx and​ UPS; exercise and other statin drugs such as Zocor

1. Substitutes for Cox Communications include​ ______.

satellite television services

3. Minnie will not produce a quantity at which the market demand for water is inelastic because when demand is inelastic she can​ _______ the quantity​ produced, which​ ______.

​decrease; increases total​ revenue, decreases total​ cost, and increases economic profit

1. The monopolies which profit from price discrimination are​ ______.

all three monopolies

1. The United States Postal Service has a monopoly on​ non-urgent First Class Mail. Pfizer Inc. makes​ LIPITOR, a prescription drug that lowers cholesterol. Cox Communications is the sole provider of cable television service in some parts of San Diego. Are any of these firms protected by a barrier to​ entry? Do any of these firms produce a good or service that has a​ substitute? Might any of them be able to profit from price​ discrimination? The United States Postal Service has​ ______ barrier to entry. Pfizer has​ ______ barrier to entry.

a​ legal; a legal

4. The table shows the demand schedule and the total cost schedule for​ Minnie's Mineral Springs. Calculate​ Minnie's profit-maximizing output and price and economic profit. ​Minnie's profit-maximizing output is ___ bottles an hour and the firm charges a price of ​$___ a bottle.

1.5; 7

9. ​Calypso, a U.S. natural gas​ distributor, is a natural monopoly that cannot price discriminate. The graph shows​ Calypso's costs and the market demand for natural gas. What quantity will Calypso​ produce, what price will it​ charge, and what will be the total surplus and deadweight loss if Calypso is regulated to be​ efficient? If Calypso is regulated to be​ efficient, consumer surplus is ​$___, producer surplus is ​$___​, and the deadweight loss is ​$___.

16000; 0; 0

2. When the quantity sold increases from 1 to 2 bottles an​ hour, Minnie's marginal revenue is __ dollars.

4

7. If Calypso is an unregulated​ profit-maximizing firm, consumer surplus is $___​, producer surplus is $___​, and the deadweight loss is $___.

40000; 80000; 40000

3. The graph shows​ Minnie's demand curve and marginal revenue curve. At what price is​ Minnie's total revenue maximized and over what price range is the demand for water​ elastic? Why will Minnie not produce a quantity at which the market demand is​ inelastic? ​Minnie's total revenue is maximized at a price of ​$___ a bottle.

5

4. Minnie's makes an economic profit of ​$___ an hour.

5.50

8. If Calypso is regulated to make zero economic​ profit, consumer surplus is ​$___​, producer surplus is ​$___, and deadweight loss is $___.

90000; 60000; 10000

5. ​Minnie's Mineral Springs is a​ single-price monopoly. The graph shows​ Minnie's demand​ curve, marginal revenue​ curve, and marginal cost​ curve, and the​ profit-maximizing price and output. Use the graph to determine the producer surplus generated from​ Minnie's Mineral​ Springs' water production and consumption. Is​ Minnie's an efficient producer of​ water? Explain. Suppose that new wells were discovered nearby to​ Minnie's and​ Minnie's faced competition from new producers. Explain what would happen to​ Minnie's output,​ price, and profit. The producer surplus generated from​ Minnie's Mineral​ Springs' water production and consumption is shown on the graph as Area​ _______.

A

6. La Bella​ _______.

can make even more economic profit by selling additional pizzas at a price less than​ $5 but greater than marginal​ cost, which would make it more efficient

5. ​Minnie's _________ the efficient quantity of water because at the quantity produced​ _______.

does not​ produce; marginal social benefit exceeds marginal social cost and a deadweight loss arises

6. La Bella makes a larger economic profit with this range of prices than if it sells every pizza for​ $15 because​ _______.

it sells more pizzas and the marginal revenue from each pizza sold is greater than its marginal cost

2. ​Minnie's marginal revenue is​ _____ price because​ _____.

less​ than; when she sells an additional​ bottle, her revenue consists of the price she receives for this extra bottle minus what she loses on all previous bottles she sells because of the new lower price

1. Cox Communications has a​ _______ barrier to entry regarding the entry of other cable companies into the market because Cox Communications​ _______.

natural; reaps economies of scale allowing it to provide cable television service at a lower average cost than two or more firms

5. When new wells are discovered and​ Minnie's faces competition from new​ producers, ​ _______.

the market supply of water increases and the market price​ falls, so​ Minnie's produces less​ output, charges a lower​ price, and makes a smaller economic profit

3. The demand for water from​ Minnie's is elastic between the prices of​ ______ a bottle.

​$5 and​ $10