ECON 2003-MONOPOLY

Perfect price discrimination generates the best outcome for which of the following market structures? A: Oligopoly B: Monopolistic Competition C: Perfect Competition. D: Monopoly

D: Monopoly

The practice of selling the same good or service to different consumers at different prices is called ___________

PRICE DISCRIMINATION

There are important exceptions in which monopolies are actually encouraged to incentivize positive outcomes. (True or False) True False

TRUE

Compared to an unregulated natural monopoly, what is true about the price charged and quantity produced when a natural monopoly is regulated? A: Price is lower and Quantity is higher B: Price is higher and Quantity is lower C: Price is lower and Quantity is lower D: Price is higher and Quantity is higher

A: Price is lower and Quantity is higher Reason: With government regulation of a natural monopoly, the price falls and quantity increases. This is true for both normal profit price and competitive price regulation.

The ____________ curve faced by a perfectly competitive firm is perfectly elastic.

Blank 1: demand

Price discrimination is only possible when a firm is a price _______________.

Blank 1: maker or setter

It is unlikely for a pure ________ to be productively efficient.

Blank 1: monopoly

Normal profit is also known as zero ___________ profit.

Blank 1: economic

A monopoly is not really a monopoly when there are no _____________ to entry.

Blank 1: barriers, obstacles, or impediments

Which of the following relationships exists in first-degree price discrimination? A: MR = ATC B: D = MR C: D = MC D: MC = ATC

B: D = MR

If selling another unit of output increases revenue, demand is _____________

Blank 1: elastic

Firms that engage in first-degree price discrimination charge different prices to customers A: based on their willingness and ability to pay for the good or service. B: depending on the quantity of the good or service they buy. C: based on the elasticity of the group of people. D: depending on a defining characteristic that makes it easy to distinguish groups of people.

A: based on their willingness and ability to pay for the good or service.

SELECT ALL THAT APPLY The practice of charging different prices per unit for different quantities, or blocks, of a good or service is called: A: block pricing B: perfect price discrimination C: pure monopoly D: second-degree price discrimination

A: block pricing D: second-degree price discrimination

When a pure monopoly practices first-degree price discrimination,: A: the demand curve becomes the marginal revenue curve. B: the demand curve is above the marginal revenue curve. C: the demand curve is below the marginal revenue curve. D: the marginal revenue curve becomes the supply curve.

A: the demand curve becomes the marginal revenue curve.

Suppose Carl's Candies sells 100 boxes of candy for $4 each. The total fixed cost of the 100 boxes is $100 and the average variable cost of the 100 boxes is $1.50 per box. Carl's makes a profit per unit of: A: $250. B: $1.50. C: $150. D: $2.50.

B: $1.50.

Suppose Carl's Candies sells 100 boxes of candy for $5 each. The total fixed cost of the 100 boxes is $100 and the average variable cost of the 100 boxes is $1.50 per box. Carl's makes a total profit of: A: $1.50. B: $250. C: $150. D: $2.50.

B: $250.

Monopoly power is the ability of a monopoly to influence ________________ by controlling the ____________________ that it produces in the market.

Blank 1: prices, price, or output Blank 2: quantity, quantities, or amount

________________ efficiency is producing output at the lowest possible average total cost of production.

Blank 1: productive

All firms maximize _______________ by producing the quantity of output at which the marginal revenue is equal to the marginal cost.

Blank 1: profit or profits

When a firm has a loss, the total _________ is less than the total __________.

Blank 1: revenue Blank 2: costs or cost

Pure monopoly refers to A: any market in which the demand curve to the firm is downward-sloping. B: a standardized product being produced by many firms. C: a single firm producing a product for which there are no close substitutes. D: a large number of firms producing a differentiated product.

C: a single firm producing a product for which there are no close substitutes.

Second-degree price discrimination is also known as: A: perfect price discrimination. B: block profits. C: block pricing. D: monopolistic competition.

C: block pricing.

A profit-maximizing __________________ will always operate on the elastic portion of a linear demand curve.

Blank 1: monopoly

When a firm has a loss, the total revenue is __________ than the total cost.

Blank 1: less, lower, smaller, or lesser

Firms use price discrimination to: A: expand their employee base. B: decrease the implicit cost of production. C: decrease their average cost of production. D: increase their profits.

D: increase their profits.

For a monopoly, the marginal revenue is below the demand curve because: A: the monopoly has to lower the price on all units to sell more. B: the total revenue curve lies below the demand curve. C: the monopoly sells its goods at a lower price than that at which they are demanded. D: the demand for a monopolistic good is never satisfied at any given price.

A: the monopoly has to lower the price on all units to sell more.

Due to the market inefficiencies created by ___________________ , one of the roles of government is to limit their market power or even to eliminate them entirely. (Use only one word to fill in the blank.)

Blank 1: monopolies or monopoly

A market structure characterized by a single seller is a(n) ______________. (Use only one word to fill in the blank.)

Blank 1: monopoly

A pure ___________ will charge consumers the price that they are willing and able to pay for the amount of output available.

Blank 1: monopoly

A(n) ________________ produces less output than a competitive firm and therefore is likely to hire less labor. (Use only word to fill in the blank.)

Blank 1: monopoly

A person who invents the ability to time travel will likely operate as a(n) ___________________ because there would be no substitutes and entering that market would be difficult for anyone else. (Use only one word to fill in the blank.)

Blank 1: monopoly or monopolist

A(n) _____________ profit simply indicates that the firm is doing just as well as it would have if it had chosen to use its resources to produce a different product or to compete in a different industry.

Blank 1: normal

A pure monopoly will find that marginal revenue A: exceeds price. B: is identical to price. C: is sometimes greater and sometimes less than price. D: is less than price.

D: is less than price.

Demand and Revenues for a Monopoly PRICE($) - QUANTITY(UNITS) - TOTAL REV($) - MARGINAL REV.($) $40 0 $35 5 $30 10 $25 15 $20 20 $15 25 Using the demand schedule, what is the marginal revenue (MR) for the 10th unit? A: $175 B: $25 C: $125 D: $300

B: $25 Reason: To find MR, you will first need to find Total Revenue at 5 units and 10 units. TR = P × Q. TR at 5 = (35)(5) = $175. TR at 10 = (30)(10) = $300. MR = change in TR/change in Q. At 10 units, MR = (300 − 175)/(10 − 5) = (125)/(5) = $25.

Which of the following is not a characteristic of monopoly? A: A good or service for which there are no close substitutes B: Continuous economic profits C: The firm having significant price control D: A market with barriers to entry E: A single seller

B: Continuous economic profits

Total revenue equals: A: price times cost. B: price times quantity. C: cost times output. D: output times quantity.

B: price times quantity.

A business will charge a lower price to the group with the relatively more _________ demand and a higher price to the group with the relatively more ______________ demand.

Blank 1: elastic Blank 2: inelastic

A perfectly competitive market is characterized by a large number of sellers producing a standardized product and taking the market price as given with easy ________________ and ________________ into the market.

Blank 1: entry, entering, or entrance Blank 2: exit, exiting, or exits

For the profit-maximizing level of output, the price charged by a monopoly is not just different but ________________ than marginal revenue.

Blank 1: greater, larger, bigger, higher, or more

Monopolies charge prices __________ than those experienced by consumers in purely competitive markets.

Blank 1: higher, above, greater, or more

The level of profit that occurs when the total revenue is less than the total cost is called an economic _______________.

Blank 1: loss

The data below relates to a pure monopoly and the product it produces. PRICE - QUANTITY - TOTAL COST ------------------------------------------------ 22 0 20 20 1 24 18 2 27 16 3 34 14 4 40 12 5 49 10 6 59 What is the profit-maximizing output and price for this firm? A: P = $12; Q = 5 B: P = $14; Q = 4 C: P = $15; Q = 3 D: P = $18; Q = 2

B: P = $14; Q = 4

SELECT ALL THAT APPLY The perfect monopoly extracts all surplus from consumers, yielding higher profits than any other pricing method when it employs which of the following? A: Open-tier price discrimination B: Perfect price discrimination C: Perfectly competitive pricing D: Personal pricing E: First-degree price discrimination

B: Perfect price discrimination D: Personal pricing E: First-degree price discrimination

By charging consumers the highest price they are willing and able to pay, _____ extracts all surplus from consumers yielding higher profits than any other pricing method available to the firm. A: a monopolistically competitive firm B: a pure monopoly C: an oligopolist D: a perfectly competitive firm

B: a pure monopoly

A shoe-store having a BOGO (buy one get one free) sale is what type of price discrimination? A: first-degree price discrimination B: second-degree price discrimination C: third-degree price discrimination D: It is not price discrimination.

B: second-degree price discrimination

Often the fee structure for electric companies are based off of the quantities that a customer consumes, and that on average the price of electricity falls as more electricity is consumed. This is an example of what type of price discrimination? A: first-degree price discrimination B: second-degree price discrimination C: third-degree price discrimination D: It is not price discrimination.

B: second-degree price discrimination

In a pure monopoly the firm is willing to sell to anyone willing and able to pay at least the marginal cost of production. The result is that output is produced where D = MC A: which lowers prices for all consumers B: which is allocatively efficient. C: which minimizes costs. D: which is allocatively in efficient.

B: which is allocatively efficient.

____________________ equals the total revenue minus the total cost. (Use one word to fill in the blank.)

Blank 1: Profit or Total profit

In a pure monopoly, the firm is willing to sell to anyone willing and able to pay at least the marginal cost of production. The result is that output is produced where D = MC, which is ______________ efficitent.

Blank 1: allocatively

Because monopolies have market power and can influence the price of the goods they sell, they tend to produce lower output and charge a higher price than would prevail in a(n) _____________ equilibrium.

Blank 1: competitive

In economics, we refer to a situation in which there is only one firm but no real barriers to entry as a(n) ___________________ market.

Blank 1: contestable

The efficiency loss resulting from a monopolistic market is called a(n) ____________ loss.

Blank 1: deadweight or dead-weight

A pure monopoly has the overall market ______________ to itself because it is the only seller in a market.

Blank 1: demand

Total revenue minus the implicit costs and explicit costs of production is _____________ profit.

Blank 1: economic

Monopolies maximize profits by choosing levels of output ___________ (higher/lower) than those found in purely competitive markets.

Blank 1: lower or less

As the market price decreases, all else held constant, a profit-maximizing firm will ____________ its production.

Blank 1: lower, decrease, cut, reduce, or minimize

If a monopoly wants to sell more units, it must ______________ the price for every unit sells.

Blank 1: lower, reduce, or decrease

The extra or additional revenue associated with the production of an additional unit of output is the _________________ revenue.

Blank 1: marginal

For a monopoly, the ________________ revenue curve is located below the _______________ curve.

Blank 1: marginal Blank 2: demand

Because monopolies have market power and can influence the price of the goods they sell, they tend to restrict ____________ and charge a higher _____________ than would prevail in a competitive equilibrium.

Blank 1: output, quantity, production, or supply Blank 2: price or prices

SELECT ALL THAT APPLY The practice of charging each and every consumer the price she is willing and able to pay for a good or service describes: A: second-tier price discrimination. B: personal pricing. C: first-degree price discrimination. D: perfect price discrimination.

C: first-degree price discrimination. D: perfect price discrimination.

One of the roles of a government is to limit the market power of monopolies or even to eliminate them entirely due to: A: overproduction of monopoly goods. B: overconsumption of monopoly goods. C: market inefficiencies. D: externalities.

C: market inefficiencies.

One defining characteristic of pure monopoly is that the A: monopoly is a price taker. B: monopoly uses advertising. C: monopoly produces a product with no close substitutes. D: entry into the industry is relatively easy, but exit is difficult.

C: monopoly produces a product with no close substitutes.

Allocative efficiency is: A: making sure that competition is healthy and continuous. B: producing goods with technology and labor. C: producing the goods and services so that their marginal benefit equals their marginal cost. D: using the fewest resources possible to produce a good or a service.

C: producing the goods and services so that their marginal benefit equals their marginal cost.

Price discrimination is best described as: A: the practice of selling the same good or service to the same consumer at different prices. B: the practice of selling different goods or services to the same consumer at different prices. C: the practice of selling the same good or service to different consumers at different prices. D: the practice of selling different goods or services to different consumers at different prices.

C: the practice of selling the same good or service to different consumers at different prices.

Discounted tickets for children into events is what type of price discrimination? A: first-degree price discrimination B: second-degree price discrimination C: third-degree price discrimination D: It is not price discrimination.

C: third-degree price discrimination

Demand and Revenues for a Monopoly PRICE($) - QUANTITY(UNITS) - TOTAL REV($) - MARGINAL REV.($) $40 0 $35 5 $30 10 $25 15 $20 20 $15 25 Using the demand schedule, what is the total revenue (TR) for the 15th unit? A: $400 B: $25 C: $375 D: $15

C:$375 Reason: To find total revenue, multiply the price and the quantity at 15 units. TR = ($25)(15) = $375.

Third-degree price discrimination charges different prices to different consumers in order to: A: gain more consumers. B: decrease profits. C: increase profits. D: sell more units.

C:Increase profits. Reason: The goal of price discrimination is to maximize profits for businesses

The difference between the economic surplus when the market is at its competitive equilibrium and the economic surplus when the market is not in equilibrium is the: A: opportunity cost. B: profit loss. C: marginal loss. D: deadweight loss.

D: deadweight loss.