ch. 10 test prep prt 1

A monopolist can sell 1,000 units of a good at a price of $4 per unit. Lowering price to all buyers by $1 raises the quantity demanded by 1,000 units. What is the change in total revenue that results from the price change? a.$2,000 b.$3,000 c.$4,000 d.$5,000 e.none of the above

a.$2,000

Which of the following is not a condition necessary for the successful use of price discrimination? a.The seller must be a price taker. b.The seller must be able to distinguish among different buyers willing to pay different prices. c.Arbitrage must not be possible. d.The seller must be a price searcher. e.a and c

a.The seller must be a price taker.

A natural monopoly exists when a monopoly is formed as a result of a.economies of scale that are so pronounced that only one firm can survive in the market. b.legal barriers that are imposed by the government, such as licenses and patents. c.the monopolist being the exclusive owner of a key resource necessary to enter the market. d.diseconomies of scale that exist at low levels of output. e.none of the above

a.economies of scale that are so pronounced that only one firm can survive in the market.

For the perfectly price discriminating monopolist, price a.equals marginal revenue. b.equals average variable cost. c.is greater than marginal revenue. d.is less than marginal revenue. e.is less than average total cost.

a.equals marginal revenue.

Maximizing profit is the same as maximizing revenue only when the firm a.has no variable costs. b.has no fixed costs. c.is minimizing average variable costs. d.Is minimizing average fixed costs.

a.has no variable costs.

A monopolist that practices perfect price discrimination earns ____________ total revenue than it would if it charged all _________ the same per-unit price. a.higher, buyers b.higher, sellers c.lower, buyers d.lower, sellers

a.higher, buyers

The profit-maximizing monopolist will sell the level of output at which a.marginal revenue equals marginal cost. b.price equals marginal cost. c.price equals average total cost. d.price equals marginal revenue. e.marginal revenue equals average variable cost.

a.marginal revenue equals marginal cost.

A monopolist that practices perfect price discrimination has a.no deadweight loss triangle. b.the same deadweight loss triangle as a single-price monopolist has. c.a larger deadweight loss triangle than a single-price monopolist. d.a deadweight loss triangle equal to one-half the deadweight loss triangle of the single-price monopolist. e.none of the above.

a.no deadweight loss triangle.

For a monopolist, a.price is greater than marginal revenue. b.price is less than marginal revenue. c.price is equal to marginal revenue. d.its demand curve is the same as its marginal revenue curve. e.c and d

a.price is greater than marginal revenue.

For a perfectly price-discriminating monopolist _________________ and for a single-price monopolist ___________________. a.P = MC, P = MC b.P = MC, P > MC c.P > MC, P > MC d.P > MC, P < MC e.none of the above

b.P = MC, P > MC

____________________ consists of the actions of individuals and groups that spend resources to influence public policy in the hope of redistributing (transferring) income to themselves from others. a.Productive efficient actions b.Rent seeking c.Resource-allocative efficient actions d.X-inefficiency e.none of the above

b.Rent seeking Rent seeking consists of the actions of individuals and groups that spend resources to influence public policy in the hope of redistributing (transferring) income to themselves from others.

Which of the following is the best example of a barrier to entry? a.diseconomies of scale b.a public franchise c.constant returns to scale d.high price elasticity of demand

b.a public franchise As the phrase implies, barriers to entry keep firms from entering a market. In the monopoly market structure, there are high barriers to entry which maintain one firm's ability to supply the entire market. Barriers to entry include: ownership of a key resource, economics of scale, and legal barriers (such as, a public franchise.)

If the monopolist charges a price that is below ATC at the level of output at which MR = MC, then the monopolist a.earns positive economic profits. b.incurs losses. c.earns zero economic profit. d.There is not enough information to answer the question.

b.incurs losses.

A price searcher a.is a seller that searches for the best location at which to sell its product. b.is a seller that has the ability to control to some degree the price of the product it sells. c.faces a horizontal demand curve. d.faces a perfectly elastic demand curve. e.c and d

b.is a seller that has the ability to control to some degree the price of the product it sells.

Compared to the monopolist, the perfectly competitive firm faces a demand curve that is ___________________ elastic because there are ______________ close substitutes for the product produced by the perfectly competitive firm. a.more, fewer b.more, more c.less, fewer d.less, more

b.more, more

If Firm ABC has the ability to control the price of the product it sells to some degree it is called a price _________________ and faces a ____________________ demand curve. a.taker, downward-sloping b.searcher, downward-sloping c.taker, horizontal d.searcher, horizontal e.searcher, upward-sloping

b.searcher, downward-sloping Firms that have the ability to control the price of the product it sells, even to a small degree, are called price searchers. A monopolist is a price searcher because the firm can raise the price of its product and still be able to sell some units of the product, but not as many units as it would have sold at a lower price. The demand curve faced by a price searcher is therefore downward sloping.

Maximizing profit is the same as maximizing _________________ if _____________. a.total revenue, TFC is positive b.total revenue, TVC is zero c.total cost, TFC is constant d.marginal revenue, TVC is positive and constant e.none of the above

b.total revenue, TVC is zero Profit is the difference between total revenue and total cost. Total cost includes total fixed cost and total variable cost. If total variable cost is zero, then maximizing profit is the same as maximizing total revenue since total fixed cost is constant.

Based on the information in the table below, this single-price monopolist will produce _____________ units to maximize profits and will charge a per-unit price of _________________. a.10, $10.00 b.20, $9.00 c.30, $6.50 d.40, $5.00

c.30, $6.50 The profit-maximizing monopolist will produce the level of output for which MR = MC. In this problem, the profit-maximizing level of output is 30 units since the marginal cost equals the marginal revenue for the 30th unit. Total revenue equals price times output. In this problem, total revenue is $195 when Q = 30 units, so price must be equal to $6.50 when the firm sells 30 units of its product.

Which of the following is descriptive of rent seeking? a.Bill earns a larger profit this year than he did last year. b.A company hires a software engineer to work for it. The software engineer works in Washington, D.C. c.A domestic company hires a lobbyist to try to influence legislators to impose a quota on its foreign competitors' goods. d.A company charges a price per-unit than is higher than its marginal cost. e.b and c

c.A domestic company hires a lobbyist to try to influence legislators to impose a quota on its foreign competitors' goods.

_________________________ is the organizational slack that is associated with the monopolist operating at a cost that is higher than the lowest possible cost, resulting from an absence of competition. a.Price discrimination b.X-efficiency c.Rent seeking d.Economies of scale e.Diseconomies of scale

c.Rent seeking Economist Harvey Leibenstein has made the point that monopolists are able to produce products at a cost that is higher than the minimum cost because they do not face any competition, termed X-efficiency. In the absence of competition, the monopolist can be less concerned with using the lowest cost methods of production and may be more inclined to be inefficient.

One difference between a perfectly competitive firm and a monopoly firm is that for a perfectly competitive firm the a.profit maximizing firm will produce the level of output for which marginal revenue is equal to marginal cost, but this is not the case for a monopoly firm. b.firm is earning a profit when price is greater than average total cost c.demand curve and marginal revenue curve are the same, but not for a monopoly firm. d.demand curve and marginal revenue curve are not the same, but they are for a monopoly firm.

c.demand curve and marginal revenue curve are the same, but not for a monopoly firm.

The profit-maximizing perfectly competitive firm ________________ resource allocative efficient, and the profit-maximizing monopolist ________________ resource allocative efficient. a.is, is b.is not, is not c.is, is not d.is not, is

c.is, is not

When only one firm can survive in an industry because economies of scale are very pronounced, the firm is termed a ________________ monopoly. a.franchise b.X-inefficiency c.natural d.perfectly elastic

c.natural A natural monopoly is the condition in which economies of scale are so pronounced that only one firm can survive. In these industries, low average total costs are obtained only through large-scale production, making it difficult for new entrants into the market to compete.

Individuals who spend resources to influence public policy in a way that will redistribute income to themselves are engaging in a.price discrimination. b.profit-maximization. c.rent seeking. d.economies of scale.

c.rent seeking. Rent seeking occurs when individuals and groups spend resources to influence public policy in the hope of redistributing (transferring) income from others to themselves. Economist Gordon Tullock has made the point that rent seeking is individually rational but socially wasteful.

Which of the following is an assumption of the theory of monopoly? a.Firms are free to enter the market, but cannot exit the market. b.There are few buyers and few sellers in the market. c.The product being produced has a large number of close substitutes. d.There are extremely high barriers to entry into the market. e.none of the above.

d.There are extremely high barriers to entry into the market.

A perfectly price-discriminating monopolist charges ____________ price for each unit of the good it sells, and a single price monopolist charges _________________ price for each unit of the good it sells. a.the same, a different b.the same, the same c.a different, a different d.a different, the same

d.a different, the same

In maximizing profits, a single-price monopolist will charge a price that is _____________ and therefore the monopolist ____________________. a.below marginal cost, does not achieve resource-allocative efficiency b.above marginal cost, does achieve resource-allocative efficiency c.equal to marginal cost, does achieve resource-allocative efficiency d.above marginal cost, does not achieve resource-allocative efficiency e.equal to marginal cost, does not achieve resource-allocative efficiency

d.above marginal cost, does not achieve resource-allocative efficiency

For a single-price monopoly firm, price is ____________ marginal revenue. For a perfectly price discriminating monopoly, price is ______________ marginal revenue. a.greater than, less than b.less than, equal to c.equal to, greater than d.greater than, equal to

d.greater than, equal to A single-price monopoly firm must lower the price of its product to all buyers in order to sell more units. Price is therefore greater than the marginal revenue for a single-price monopoly. A monopolist engaging in perfect price discrimination receives the maximum price for each unit that it sells. The firm does not have to lower the price to all buyers in order to sell more units of the product, so price is equal to marginal revenue.

Suppose the local amusement park charges lower prices to senior citizens and children than it charges to other customers. The amusement park is practicing a.perfect price discrimination. b.first-degree price discrimination. c.second-degree price discrimination. d.third-degree price discrimination.

d.third-degree price discrimination. There are various types of price discrimination. Third-degree price discrimination is discrimination among buyers. Businesses that charge customers different prices based on which group or market the customer belongs to is engaging in third-degree price discrimination.

Which of the following statements is false? a.For a price taker, P = MR, but for a price searcher, P > MR. b.A monopoly firm's demand curve lies above its MR curve. c.A single-price monopolist charges the same price for all units of its product. d.A perfect price-discriminating monopolist charges a different price for each unit of the good it sells. e.A single-price monopolist charges a price that is equal to marginal cost at the quantity of output at which MR = MC.

e.A single-price monopolist charges a price that is equal to marginal cost at the quantity of output at which MR = MC.