quiz 13

A government can maximize efficiency in monopoly markets by setting prices equal to the monopolist's average cost of production albeit at the cost of reduced long term innovation. True false

True

A firm with no competition faces a perfectly inelastic demand curve. true or false

false

A monopoly maximizes profit by finding the output level where the difference between marginal revenue and marginal costs is as large as possible. true False

false

A profit-maximizing monopolist chooses the output level where MR = MC and chooses the corresponding price from the marginal revenue curve. true or false

false

Deadweight loss is present in both competitive and monopoly markets. true or false

false

For a monopoly, the entire consumer surplus is transferred to the monopolist as profit. True False

false

A monopolist can raise its price further above marginal cost, the more ______ is the ______ for its product. elastic; demand inelastic; demand elastic; supply inelastic; supply

inelastic; demand

(Figure: Monopoly Markup) Refer to the figure. Consumer surplus under monopoly is represented by: triangle abc. triangle cef. square bcde. triangle adf.

triangle abc.

Figure: Monopoly Markup) Refer to the figure. Consumer surplus under competition is represented by: triangle abc. triangle cef. square bcde. triangle adf.

triangle adf.

Figure: Monopoly Markup) Refer to the figure. The deadweight loss attributable to monopoly is: triangle ABC. triangle cef. square bcde. triangle adf.

triangle cef.

A monopolist maximizes profits where marginal revenue equals marginal cost. true or false

true

A monopolistic industry will have lower output and higher prices than a competitive industry. True False

true

A monopoly is a firm with market power, and market power may arise from economies of scale, patent protection, and innovation. True False

true

For a linear demand curve, the marginal revenue curve has: the same slope. the reciprocal slope. half the slope. twice the slope.

twice the slope.

(Figure: Maximum Willingness to Pay) Refer to the figure. What is the profit-maximizing quantity for this monopolist? 125 110 100 75

110

(Figure: Monopoly 8) If the government set price equal to average cost, the natural monopolist in this figure would produce: 9 units of output. 10 units of output. 14 units of output. 17.5 units of output.

14 units of output.

(Figure: Monopoly 6) If the market in this figure is a competitive market, consumer surplus is given by area(s): A + B + C. B + C. A. A + B.

A + B + C.

(Figure: Monopoly Profits) Refer to the figure. The monopolist earns a profit of: $630. $420. $540. $480.

$420.

(Figure: Monopolist 3) In this figure, the monopolist's maximum profit is: $99. $45. $36. $54.

45

If this figure represents the demand and cost curves for a firm with market power, what price should the firm charge to maximize profits? $40 $50 $60 $65

60

Figure: Optimal OutputRefer to the figure. The competitive industry level of output is: 40. 65. 80. 100.

80

Figure: Monopoly 8) The natural monopolist in this figure would produce: 9 units of output. 10 units of output. 14 units of output. 17.5 units of output.

9

(Figure: Monopolist 3) In this figure, the profit-maximizing monopolist sells: 9 units of output at $11 per unit. 16 units of output at $4 per unit. 9 units of output at $20 per unit. 18 units of output at $2 per unit.

9 units of output at $11 per unit.

Figure: Monopoly 6) If the market in this figure is a monopoly, the consumer surplus is area ______, and the deadweight loss is area ______. B; C A; C A; B + C C; B

A; C

(Figure: Maximize Monopoly Profits) Refer to the figure. The monopolist will maximize its profit by producing at output equal to: Q1. Q2. Q3. Q4

Q2.

For a monopolist, MR is always less than P because: when a monopolist lowers the price to sell more units, it must lower the prices of all units sold. MR is always less than P regardless of what type of firm we are discussing. marginal revenue is always lower for the next unit sold. when a monopolist needs to sell more units, it must lower marginal revenue in order to do so.

when a monopolist lowers the price to sell more units, it must lower the prices of all units sold.

(Figure: Maximum Willingness to Pay) Refer to the figure. What is the maximum price that the consumer is willing to pay for 100 units? $100 $80 $75 $90

$100

Figure: Paint MarketWhat is the profit or loss for this monopoly? -$200,000 $10,000 $100,000 $250,000

$100,000

(Figure: Paint Market 2) What is the deadweight loss (if any) from the monopoly in this diagram relative to its optimum quantity? $125,000 $250,000 $300,000 No deadweight loss

$125,000

In this figure, the monopolist's marginal revenue curve is: also the demand curve. MR1. MR2. MR3.

MR2.

Figure: Monopoly Profits) Refer to the figure. What is the monopolist's optimal price and output level? P = $3.00; Q = 40 P = $16.50; Q = 40 P = $6.00; Q = 40 P = $6.00; Q = 80

P = $16.50; Q = 40

(Figure: Maximize Monopoly Profits) Refer to the figure. The monopolist will maximize its profit by charging a price equal to: P1. P2. P3. P4.

P2.

Refer to the figure. Which of the following answers correctly indicates the profit earned by this monopolist at the profit-maximizing quantity? the area A + B the area A - B the area (A + B) - MC area A

area A

Refer to the figure. The monopolist's price markup is: a - b. b - d. d. a - d.

b-d

Refer to the figure. Deadweight loss caused by monopoly pricing is represented by the area: abd. acdf. bcdf. def

def

A firm will attain more monopoly power as demand for its product becomes more elastic. true or false

false

Economists call a single firm that can supply the entire market at a lower cost than two or more firms a __________ monopoly. regulatory government natural predatory.

natural

(Figure: Paint Market 2) If the fixed costs were halved, deadweight loss would: double. be halved. be reduced to zero. not change

not change

A natural monopoly occurs when: the product is sold in its natural state (such as water or diamonds). there are economies of scale over the relevant range of output. the firm is characterized by a rising marginal cost curve. production requires the use of free natural resources, such as water or air.

there are economies of scale over the relevant range of output.