Microeconomics: Chapter 6
If a monopolist sells 100 units for $10 per unit and has an average cost of $8 per unit, what is the firm's total revenue?
$1,000
If the total revenue (TR) that a monopolist earns for 50 widgets is $20,000 and the marginal revenue (MR) for selling 51 widgets is $145, what is the average revenue (AR) for 51 widgets?
$395
Examine the graph below. The firm's profit is
$750
If a monopolist sells 100 units for $10 per unit and has an average cost of $8 per unit, what is the firm's total cost?
$800
If reducing the price of a product from $20 to $18 results in an increase in sales from 100 units to 106 units, what is the product's elasticity of demand?
0.6
Examine the demand curve for a monopolist below. If the monopolist decreases the price of the product from P2 to P1, the area ______________ represents the firm's additional revenue.
ABFG
Which of the following would NOT be an example of product differentiation?
All of the above are methods of differentiation
Use the graph to answer the question. Which letter represents the profit-maximizing output in a monopoly?
B
Examine the graph below. If the firm decreases the product price from P2 to P1, area ____________ represents the firm's lost revenue.
EDCB
Which of the following is a serious problem associated with breaking up a monopoly?
Economies of scale may be disrupted
Which of the following statements about elasticity is true?
Elasticity changes as the quantity demanded changes
T/F: A firm with market power faces a demand curve with constant elasticity.
False
T/F: A monopolist is constrained by marginal revenue in setting price.
False
T/F: A monopolist maximizes profit by maximizing price.
False
T/F: A monopolistically competitive firm is characterized by high barriers to entry.
False
T/F: For a firm with market power, marginal revenue (MR) equals price.
False
T/F: For a monopolist, maximizing revenue is the same as maximizing profit.
False
T/F: In a game of advertising between two monopolistic competitors, the firms choose the most stable outcome because they can enforce the agreement between them.
False
T/F: Is the following statement true or false? A monopolist will always be able to operate at a profit.
False
T/F: Marginal revenue is always less than price for a competitive firm.
False
T/F: Monopolists always require government protection to maintain their monopoly position.
False
T/F: Monopolists set the price of their products on the demand curve at the output level where the supply curve intersects the marginal revenue curve.
False
T/F: One of the main characteristics of an oligopoly is firms' complete independence from one another.
False
T/F: The demand curve facing a monopolist is the same as the one facing every other firm in the industry.
False
T/F: When regulators consider ways to regulate monopolies, they should choose to set price and output where marginal cost equals demand, thus maximizing social value.
False
For a monopolist, which of the following statements about marginal revenue is true?
For a monopolist, marginal revenue depends on the elasticity of the demand curve
Which of these statements about the marginal cost (MC) curve and average total cost (ATC) curve is true?
For a monopolist, the average total cost (ATC) curve is decreasing when it is above the marginal cost (MC) curve and is increasing when it is below the marginal cost (MC) curve
Which of these statements is true about a firm with market power?
If a firm with market power faces an elastic demand curve, a small change in price results in positive marginal revenue
Why will U.S. companies not jointly decide to cease advertising?
It would be collusive and illegal
What is the profit maximizing point for both firms in competition and in a monopoly?
MR = MC
Which of the following statements about marginal revenue is true?
Marginal revenue (MR) is always less than the price
An outcome of the prisoner's dilemma in which each player does the best that he / she can do, given what the other players are doing is known as a...
Nash equilibrium
Examine the graph below. This monopolist is maximizing profits at...
Q1 and charging a price of P1
What is the difference between price and average cost?
The difference between price and average cost is the profit per unit, or profit margin
Which of the following will be true of the monopolistic competitor in the long run?
The firm will not make an economic profit because low barriers to entry permit other firms to enter
What would be the result for a firm if its marginal cost curve shifted up within the gap on the marginal revenue curve?
The firm would not change either price or output
A monopolist can sell 20 widgets at $25 each. In order to sell 21 widgets, the firm must lower the price to $23. What happens to marginal revenue?
The marginal revenue (MR) would be −$17.
At which level of output would a monopolist produce to maximize profit?
The monopolist maximizes profit by producing at the level of output where marginal revenue (MR) equals marginal cost (MC)
Which of the statements concerning a monopolist's revenue is NOT always true?
Total revenue increases with each additional unit of output
T/F: A monopolist calculates its profit by multiplying the quantity of output by average revenue minus average cost.
True
T/F: A monopoly is a single seller of a good or service.
True
T/F: For a monopolistically competitive firm, when price equals average total cost, the price must lie above marginal cost.
True
T/F: For a profit-maximizing monopoly, when total revenue is maximized, marginal revenue is zero.
True
T/F: If a monopolist firm has an inelastic demand curve, it can increase its price and expect a more than proportionate increase in revenue.
True
T/F: Monopolies create a social cost because consumers who may be willing to pay for the product up to its marginal cost are NOT served.
True
T/F: Product differentiation leads to some degree of market power.
True
T/F: The main criticism of the kinked-demand curve model is that it does NOT explain how firms reach the original price / output at the kink.
True
T/F: for a monopolist, profit maximization occurs at the output where marginal revenue is equal to marginal cost.
True
Monopoly pricing blocks some trades from taking place. These trades would have taken place if the industry were perfectly competitive. These unrealized trades are...
a deadweight loss to society
Which of the following is a a good example of a monopoly?
a local electric power company
Use the graph to answer the question. If this firm is behaving as a firm with some market power, it is experiencing...
a loss
Use the graph to answer the question. If the graph is a market for a monopoly, which area represents the consumer surplus?
ab
Which of the following characteristics can be used to differentiate products in a specific market?
advertising
In an advertising "prisoner's dilemma" game, both firms end up __________________ which turns out to be ________________________
advertising; worse for them both
Market power exists when a firm is...
all of the above
Average cost pricing...
allows the monopolist to cover per-unit costs
Which of the following effects is NOT created by a monopoly?
an increase in innovation
A cartel is different from a monopoly...
because a cartel is made up of multiple firms
Product differentiation matters because it is the method by which monopolistically competitive firms...
can have some control over their share of the market
When firms have either an explicit or implicit agreement among themselves to restrict the quantity of product and regulate its price, the arrangement is called a...
cartel
Marginal revenue is equal to the...
change in total revenue ÷change in quantity sold
The prisoner's dilemma game does NOT explain _____________________ markets, but is useful in explaining behavior in ________________ markets.
competitive, oligopoly
Examine the graph of a monopolist's market. The __________ curve is always downward sloping because price and quantity are _____________ related.
demand; inversely
Examine the graph below. The areas of deadweight loss are
e and f
Oil producing countries can operate as a cartel in all of the following ways EXCEPT...
each country sets its profit maximizing price and quantity
An oligopoly assumes...
each firm will react to its competitor's price decreases
In the long run, a monopolistic competitor will...
earn zero economic profit
A natural monopoly exists when...
economies of scale are so large that only one firm can survive and achieve low unit cost
Use the graph to answer the question. Which area represents the deadweight loss in a monopoly?
ef
In a kinked-demand curve model, the demand curve at prices greater than the kink is _______________, but the curve below the kink is______________.
elastic; inelastic
In the market for pants, there are many sellers. These sellers distinguish themselves from one another and thus...
face downward sloping demand curves
Which of the following is an example of a monopolistically competitive industry?
fast-food hamburger restaurants
A Nash equilibrium means that in an oligopoly market...
firms choose their own best pricing strategy, given the behavior of other firms in the industry
A monopolist's price is _______ and output is ______ than perfect competition.
greater; less
If one company is a single seller of a good and is earning economic profits, what prevents other firms from entering the market and competing with the firm?
high barriers to entry
Which of the following is NOT a problem associated with cartels?
higher production costs
Cartels are...
illegal in the U.S. for restraining free trade
All of the following are reasons some monopolies are legal in the U.S. EXCEPT
increasing availability of jobs
The following are all examples of rent-seeking practices EXCEPT
increasing the monthly rental rate for tenants in a building
For natural monopolies, average total cost falls continuously and never begins to increase. Therefore, marginal cost...
is always less than average total cost
One of the paradoxes of game theory is that the players' "dominant strategy"...
is not necessarily the most efficient outcome
For a monopolist, marginal revenue is...
less than the product's price
Which of the following would hinder the success of a cartel?
low barriers to entry
Monopolistically competitive markets are like competitive markets in that they have...
many sellers
To maximize revenue, a monopolist prices its product at the point where ___________ is equal to zero.
marginal revenue
By following the profit maximizing rule, a monopolist...
maximizes its profit (or minimizes its losses)
A monopolistically competitive firm behaves somewhat like...
monopoly due to their market power
Deadweight loss compares
monopoly surplus to competitive surplus
If firms in a monopolistically competitive market are making short-run economic profits,
new firms are likely to enter the market
Product differentiation is a type of...
nonprice competition
In the kinked-demand curve model, the kink means that...
other firms in the industry match all price decreases below the kink
A monopolist is NOT as good for society as a perfectly competitive firm because
output is lower and price is higher than under competition
Advertising by monopolistically competitive firms assumes that...
people will pay more for a product they consider superior
The economic problem with a monopoly is...
price is high and quantity is low
All of the following are examples of how monopolies are created EXCEPT
profitability
The main problem with monopolies is their ability to...
restrict output to level below the socially efficient level
All of the following may be methods of regulating a monopoly, EXCEPT
restricting quantity sold
A natural monopoly arises because of the interaction between the __________ of the market and the __________ scale of operation of a single firm.
size; efficient
Which of the following is probably not a method of product differentiation.
small number of sellers
If a regulated monopolist has a loss when the government forces it to price at its marginal cost...
the government should subsidize the firm
One method of government regulation of monopolies is to require the firm to price the product at its marginal cost and produce at the competitive output level. The problem with this scheme is...
the monopolist may have economic losses and exit the industry
In the short run, a monopolistically competitive firm chooses...
the quantity to produce and the price at which it can sell the product
What do oligopolies and perfectly competitive firms have in common?
the rule of profit maximization
Governments sometimes force monopolies to set their price at their average cost. The main problem with this regulatory pricing method is that...
there is no incentive for a monopolist to lower its costs
A monopolistically competitive firm will advertise...
whether or not it believes the competitor will advertise
Game theory assumes that your competitor...
will react to your actions