Pure Monopoly
Answer the question on the basis of the demand and cost data for a pure monopolist. The profit-maximizing price for the monopolist will be
$2.25.
Refer to the data. At its profit-maximizing output, this firm's total revenue will be
$280.
The table shows the demand schedule facing Nina, a monopolist selling baskets. What is the change in total revenue if she lowers the price from $20 to $18?
$30
Assume that this monopolist faces zero production costs. The profit-maximizing monopolist will set a price of
$5.
The graphs represent the demand for use of a local golf course for which there is no significant competition. (It has a local monopoly.) P denotes the price of a round of golf, and Q is the quantity of rounds "sold" each day. If the left graph represents the demand during weekdays and the right graph the weekend demand, then over the course of a full seven-day week, this price-discriminating, profit-maximizing golf course should sell a total of
1,200 rounds.
Which of the following is correct?
A purely competitive firm is a "price taker," while a monopolist is a "price maker."
Refer to the graphs of D and MR for a monopolist. Which of the following statements is true?
Demand is elastic at a price of P1.
A monopolist is free to charge whatever price it wishes, to sell a certain level of output.
False
A monopolist will avoid setting a price in the elastic segment of the demand curve and prefer to set the price in the inelastic segment.
False
Because of their large-scale level of production, pure monopolists overallocate resources to their industry by producing beyond the P = MC output.
False
In the accompanying diagram, Firm B's average revenue curve coincides with its marginal revenue curve.
False
In the accompanying diagrams, both firms are selling their products in purely competitive markets.
False
Price discrimination is illegal in the United States under all circumstances due to antitrust regulations.
False
Pure monopolists always earn economic profits.
False
Many economists agree that government should deal with monopolists on a case-by-case basis. Which of the following is not a government policy option?
If the monopoly is maximizing economic profits, the government can subsidize new firms to enter the industry.
The data relate to a pure monopolist and the product it produces. What is the profit-maximizing output and price for this monopolist?
P = $14; Q = 4
If the industry depicted in the graph is purely monopolistic, the profit-maximizing price and quantity will be
P3 and Q3.
What do economies of scale, the ownership of essential raw materials, and patents have in common?
They are all barriers to entry.
Which is the best example of price discrimination?
a telephone company charging lower rates to weekend users than weekday users
Refer to the graphs of D and MR for a monopolist. We know that to maximize profits the firm will set a price
above P2.
A pure monopolist is producing an output such that ATC = $4, P = $5, MC = $2, and MR = $3. This firm is realizing
an economic profit that could be increased by producing more output.
Barriers to entering an industry
are the basis for monopoly.
In the accompanying diagram, demand is relatively inelastic
at any price below P2.
A single-price pure monopoly is economically inefficient
because it produces short of minimum average total cost and price is greater than marginal cost.
A price-discriminating monopolist will follow a system where
buyers with inelastic demand are charged higher prices than buyers with elastic demand.
Refer to the diagram for a pure monopolist. Monopoly price will be
c.
Barriers to entry
can result from government regulation.
In response to a cost-reducing technological breakthrough in the production of its product, a profit-maximizing monopolist will normally
decrease the price it charges for its product.
A pure monopoly firm will never charge a price in the inelastic range of its demand curve because lowering price to get into this region will
decrease total revenue, increase total cost, and decrease profit.
Which of the following is incorrect? Imperfectly competitive producers
do not compete with one another.
Assume that a monopolist faces a linear demand curve and that it produces the output quantity where total revenue is maximized. At that output, the price elasticity of demand for the product is
equal to one.
Under which of the following situations would a monopolist increase profits by lowering price (and increasing output)?
if it discovered that it was producing where MC < MR
Refer to the graph, which shows a total revenue curve for a monopolist. If total revenue declines as output expands, demand is
inelastic.
The nondiscriminating pure monopolist's demand curve
is the industry demand curve.
Refer to the two diagrams for individual firms. In Figure 2 the firm's demand and marginal revenue curves are represented by
lines B and C, respectively.
Many people believe that monopolies charge any price they want to without affecting sales. In fact, the output and sales level for a profit-maximizing monopoly is codetermined with price where
marginal cost = marginal revenue.
The nondiscriminating pure monopolist must decrease price on all units of a product sold in order to sell more units. This explains why
marginal revenue is less than average revenue.
In the short run, a monopolist's economic profits
may be positive or negative depending on market demand and cost conditions.
Network effects and simultaneous consumption tend to foster the development of
monopoly power.
There is some evidence to suggest that X-inefficiency is
more likely to occur in monopolistic firms than in competitive firms.
Refer to the diagram for a nondiscriminating monopolist. The profit-seeking monopolist will
never produce an output larger than q2.
Pure monopolists
operate where P > MC.
Which of the following is a barrier to entry?
patents and licenses
Refer to the diagrams. The demand for Firm A's product is
perfectly elastic over all ranges of output.
Economic profit in the long run is
possible for a pure monopoly but not for a pure competitor.
The profit-maximizing output of a pure monopoly is not socially optimal, because in equilibrium
price exceeds marginal cost.
Refer to the diagram. If this somehow was a costless product (that is, the total cost of any level of output was zero), the firm would maximize profits by
producing Q2 units and charging a price of P2.
At equilibrium, the profit-maximizing monopolist facing the situation shown in the graph will face a negative
profit.
In which one of the following market models is X-inefficiency most likely to be the greatest?
pure monopoly
If a monopoly is faced with competition from foreign multinational corporations or from potential new entrants, then it would probably
reduce price and raise output.
Assume that the owners of the only gambling casino in Wisconsin spend large sums of money lobbying state government officials to protect their gambling monopoly. Economists refer to these expenditures as
rent-seeking.
A nondiscriminating pure monopolist finds that it can sell its 50th unit of output for $50. We can surmise that the marginal
revenue of the 50th unit is less than $50.
Refer to the graph, which shows a total revenue curve for a monopolist. The profit-maximizing firm will produce in that output level where total revenue is
rising.
A price discriminating pure monopolist will attempt to charge each buyer (or group of buyers)
the maximum price each would be willing to pay.
A nondiscriminating profit-maximizing monopolist
will never produce in the output range where demand is inelastic
The diagram indicates that the marginal revenue of the sixth unit of output is
−$1.
The table shows the demand schedule facing Nina, a monopolist selling baskets. What is the change in total revenue if she raises the price from $10 to $12?
−$120