Econ 3010 Ch. 10 Monopoly
17. Consider a price ceiling imposed on a monopoly. For what quantities will the monopoly's new marginal revenue curve be horizontal at the ceiling price?
For quantities where the demand curve lies above the ceiling price.
11. In practice, many monopolists are required to earn zero economic profit.
T
25. Legal restrictions on entry into an industry
are promoted through lobbying efforts by those already in the industry, thereby further increasing the social costs of monopoly.
26. Universities tend to set tuition high and then, through financial aid, effectively charge each student a different price for education. Financial aid statements allow the university to determine the student's financial status and set an appropriate price to charge the student. This situation is an example of
first-degree price discrimination.
7. A monopolist will always end up choosing to operate
on the elastic portion of its demand curve.
45. Refer to Monopoly Problem. How much consumer surplus will there be when this monopolist charges its profit maximizing price?
$225
6. Using η to represent price elasticity of demand, a simple monopolist will find that its marginal revenue at any point along its demand curve is equal to price at that point multiplied by
(1 - 1/η)
Monopoly Problem. Consider a monopoly with constant marginal costs of $20. Consumers in the market for this monopoly's product have demand of Q = 100 - 2P. 41. Refer to Monopoly Problem. This monopoly will produce
30 units.
29. Which of the following is the best example of second-degree price discrimination?
A sub shop that gives you a half-price sandwich on every sixth visit.
1. A firm has monopoly power when it is the single seller of a good or service.
F
10. Unlike perfectly competitive firms, monopolies do not produce where marginal revenue equals marginal cost, thus leading to deadweight loss.
F
13. A competitive industry is a viable alternative to a natural monopoly.
F
15. The competition among firms to acquire the rights to legal barriers to entry helps to reduce the welfare costs of monopoly.
F
16. Social gain is lowered when a monopoly begins to practice price discrimination.
F
19. In third-degree price discrimination, the monopoly receives the highest marginal revenue from the group that is charged the highest price.
F
2. If a monopoly desires to raise its profits, it can simply raise the price it charges.
F
21. Price discrimination does not require monopoly power.
F
22. Versioning occurs when a company offers an inferior version of a product because it is cheaper to produce.
F
23. When a two-part tariff is perfectly implemented, the monopoly charges a price that is greater than its marginal cost.
F
24. For a given quantity, a monopoly's marginal revenue is always greater than the price associated with that quantity.
F
25. When regulating a natural monopoly one should set the regulatory price such that the monopoly will produce the efficient level of output.
F
4. In both the short-run and the long-run, a monopoly is guaranteed to earn positive profits.
F
7. The large increase in the price of oil and in the total revenues and profits of the US oil industry in the 1990's are evidence that it was exercising monopoly power.
F
8. A monopoly's supply curve is the portion of its marginal cost curve that lies above its average variable cost curve.
F
44. Refer to Monopoly Problem. The equation for this monopolist's marginal revenue is
MR = 50 - Q
12. If a natural monopoly charged the competitive price, it would earn a negative profit.
T
14. Patents have ambiguous welfare consequences because they both create monopoly power and promote inventive activity.
T
17. When a simple profit-maximizing monopoly begins to practice second-degree price discrimination, both consumers and the monopoly will benefit.
T
18. Both first-degree price discrimination and the two-part tariff, when perfectly implemented, reduce consumers' surplus to zero.
T
20. Expedia.com's sale of discount airline tickets to those willing to travel any hour of a day on any airline is an example of third degree price discrimination.
T
26. Deadweight loss because of a monopoly can be attributed to the fact that monopolies produce at a quantity where the price of the good exceeds the marginal cost of producing the last unit.
T
27. When there are significant differences among customers, a monopolist will look for opportunities to price discriminate.
T
3. We know that the producer's surplus accruing to a simple monopoly firm must be greater than operating in a competitive market, else firms would not act as monopolists.
T
5. An excise tax will increase the deadweight loss due to monopoly, but an excise subsidy can reduce the deadweight loss.
T
6. An unregulated, profit maximizing monopoly will never set a price where demand is inelastic.
T
9. A simple profit-maximizing monopoly will choose its price and quantity from the elastic portion of its demand curve.
T
35. What price does a monopoly charge when it perfectly implements a two-part tariff?
The competitive price.
5. What can, in general, be said about a monopoly's supply curve?
The concept of a supply curve is meaningless in the context of the monopoly problem.
15. How does a per-unit subsidy affect the simple monopoly equilibrium?
The subsidy causes both monopoly output and social gain to increase.
39. Senior citizen and student discounts on tickets at movies theaters are examples of
Third-degree price discrimination.
36. When will setting a relatively high entry fee and a low competitive price be the best strategy for a two-part tariff monopolist?
When the customers are nearly identical.
34. A country club charges a membership fee. Members pay competitive prices for the club's recreation and restaurant services. This situation is an example of
a two-part tariff.
18. Suppose regulators impose a price ceiling on a monopoly. If the price ceiling is set too high
deadweight loss will be reduced.
38. All natural monopolies are characterized by
decreasing average costs at the point where their average cost curve crosses their demand curve.
22. A natural monopoly exists when a firm
has an average cost curve that is decreasing at the point where it crosses demand.
30. When a firm with market power practices third-degree price discrimination, it charges the highest price to the group that
has the most inelastic demand.
40. A monopoly's marginal revenue curve is always
is always above the demand curve. identical to that of a perfectly competitive firm. twice as steep as the demand curve. none of the above.
33. In order to practice third degree price discrimination all of the following conditions must hold except that the firm
is willing to sell more to each customer at lower prices.
1. A firm is a monopoly if
it faces a demand curve for its product that equals market demand.
4. When a simple monopolist chooses to sell an additional unit of a good or service
it will have to lower its price on the additional unit and on all other units.
2. A simple monopoly will maximize its profit by producing the quantity where
marginal revenue equals marginal cost.
32. In third-degree price discrimination, the monopolist will choose quantities so that each market has the same
marginal revenue.
23. If a natural monopolist were to sell at the price where marginal cost equals demand, then it would be earning
negative profits and would not be able to survive.
16. An economic problem with using subsidies or price ceilings to move a monopoly toward the competitive equilibrium is that
policy makers may not be able to determine what the competitive equilibrium is.
24. In order to practice any form of price discrimination, a monopoly must be able to
prevent resale of its product.
19. In rate-of-return regulation, a monopoly is required to have zero
profit
28. Second-degree price discrimination generally takes the form of
quantity discounts.
21. Rate of return regulation will
result in a new equilibrium with either more or loss produced in comparison to a competitive market.
31. Third-degree price discrimination occurs when a monopoly
separates its customers into distinct markets, charging a different price to each group.
3. A monopoly will set price
so that it can sell the quantity at which marginal revenue is equal to marginal cost.
27. When first-degree price discrimination is perfectly implemented
social gain is maximized, with all gains going to the monopoly.
20. If regulators require a monopoly to earn zero economic profit, the monopoly will produce the quantity where
the average cost curve crosses the demand curve.
37. At a fast food restaurant, a large drink is twice as big as a small drink, but the restaurant charges 79¢ for the small drink and only 99¢ for the large drink. This situation is probably not a case of price discrimination because
the cost of serving a large drink is not twice the cost of serving a small drink.
42. Refer to Monopoly Problem. This monopoly will charge
$35
43. Refer to Monopoly Problem. This monopoly will receive producer surplus of
$450
