Ch 8 APEC 1101H Donald Liu UMN Fall 2015

1. Consider the graph pertaining to the case of monopoly. At the socially efficient level of output, the monopolist would _____. Select one: a. incur a loss of $100.10 b. incur a loss of $50.05 c. earns a profit of $50.05 d. incur a loss of $61.25

A.

10. Refer to the figures above. Suppose 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, how much economic profit will this profit-maximizing golf course earn over the course of a full seven-day week? Select one: a. $4200 b. $3700 c. $3400 d. $2700

A.

11. Refer to the above graph. Consider a monopolist in short-run equilibrium. This monopolist: Select one: a. has a loss per unit equal to DE. b. has total fixed costs equal to area BEFC. c. earns economic profit equal to area ABED. d. will cease production since its economic profits are negative.

A.

6. The monopoly's demand curve is in the graph. If this monopolistic firm were to increase sales from 20 units to 30 units of output, its marginal revenue would be Select one: a. $20 b. $200 c. $0 d. -$20

A.

9. Refer to the above graph. The profit-maximizing monopolist shown sets its price at: Select one: a. 0J. b. 0G. c. 0K. d. 0H.

A.

If a price-discriminating monopolist sells the same product in two markets but charges a lower price in market X and a higher price in market Y, the pricing difference indicates that demand is: Select one: a. more elastic in market X than market Y. b. less elastic in market X than market Y. c. more elastic in market Y than market X. d. the same in both markets X and Y.

A.

Price discrimination is more common in service industries because: Select one: a. low-price buyers will find it virtually impossible to resell the products of such industries to high-price buyers. b. the costs of providing such industries' products to different groups of buyers vary dramatically. c. the price elasticity of demand is the same for all groups of buyers in these industries. d. all firms in these industries have significant monopoly power over price.

A.

The nondiscriminating pure monopolist's demand curve: Select one: a. is the industry demand curve. b. shows a direct or positive relationship between price and quantity demanded. c. tends to be inelastic at high prices and elastic at low prices. d. is identical to its marginal revenue curve.

A.

Which is a barrier to entry in an industry? Select one: a. Economies of scale b. Allocative efficiency c. Profit maximization d. Economic profits

A.

3. Refer to the above diagram. The quantity difference between areas A and C for the indicated price reduction measures: Select one: a. marginal cost. b. marginal revenue. c. monopoly price. d. a welfare or efficiency loss.

B.

4. On the graph above, what is the profit-maximizing level of output for a pure monopolist? Select one: a. A b. B c. C d. D

B.

7. Based on the graph above, what is the difference between the purely competitive equilibrium level of output and the pure monopolist equilibrium level of output? Select one: a. 5 b. 20 c. 70 d. 90

B.

If marginal costs decrease, a typical monopolist will: Select one: a. reduce price and reduce quantity of output. b. reduce price and increase quantity of output. c. increase price and reduce quantity of output. d. increase price and increase quantity of output.

B.

Once a firm has determined the quantity of output it wishes to sell, the price it can charge is determined by Select one: a. the cost of making the product. b. the firm's demand curve. c. market demand for the product minus cost. d. the explicit cost of making the product plus the implicit costs incurred by the firm's owner.

B.

What do economies of scale, the ownership of essential raw materials, and patents have in common? Select one: a. They must all be present before price discrimination can be practiced. b. They are all barriers to entry. c. They all help explain why a monopolist's demand and marginal revenue curves coincide. d. They all help explain why the long-run average cost curve is U-shaped.

B.

Which of the following is not an example of price discrimination? Select one: a. A rebate offer b. Eliminating all sales specials and reducing all prices by 10% c. After-Christmas sales d. Weekly grocery store coupon fliers

B.

13. If the firm does not price discriminate, the monopolist could earn total profits of Select one: a. $500 b. $200 c. $120 d. $60

C.

2. Using the graph above, what is the difference between purely competitive and pure monopolist output at the industry level? Select one: a. 0 b. 35 c. 70 d. 105

C.

A firm will earn economic profits whenever: Select one: a. marginal revenue exceeds marginal costs. b. marginal revenue exceeds variable costs. c. average revenue exceeds average total costs. d. average revenue exceeds average variable costs.

C.

Allocative inefficiency due to unregulated monopoly is characterized by the condition: Select one: a. P = MC. b. P = MR. c. P > MC. d. P > AVC.

C.

Comparing the non-price discriminating monopoly outcome to the perfectly price discriminating monopoly outcome, profits are Select one: a. the same. b. less when price discriminating. c. greater when price discriminating. d. greater when charging a uniform price.

C.

Firms are prohibited from entering into contracts, combinations, and conspiracies that restrain trade by: Select one: a. Section 2 of the Sherman Act. b. Section 8 of the Clayton Act. c. Section 1 of the Sherman Act. d. the Wheeler-Lea Act.

C.

Products have network economies if they Select one: a. can be used by more than one person at a time. b. are cheaper to produce as more people buy them. c. are more valuable to own as more people own them. d. have many complements.

C.

When a firm with constant returns to scale uses 30% more of all inputs and input prices remain unchanged, Select one: a. average costs fall by 30%. b. total costs rise by more than 30%. c. average costs remain unchanged. d. average costs rise by 30%.

C.

Which does not necessarily apply to a pure monopoly? Select one: a. The product the firm produces must have no close substitutes. b. The firm must be the sole producer of a product. c. The firm must earn economic profits. d. Entry must be blocked.

C.

Which of the following is not an example of price discrimination? Select one: a. Mail-in-rebate coupon on a Apple device b. Tuesday Senior Citizens' discount at McDonald's c. A going-out-of-business sale d. A discount for advance-purchase ballgame tickets

C.

12. Refer to the figures above. Suppose 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: Select one: a. 1000 rounds. b. 740 rounds. c. 900 rounds. d. 1200 rounds.

D.

8. Consider the graph pertaining to the case of monopoly. At the point of profit maximization, the monopolist _____. Select one: a. earns a profit of $38.5 b. incurs a loss of $11.2 c. earns a profit of $11.2 d. incurs a loss of $38.5

D.

Some firms in the technology sector have achieved economies of scale because costs have been reduced by: Select one: a. price discrimination. b. socially optimal pricing. c. fair return pricing. d. simultaneous consumption.

D.

Which phrase would be most characteristic of pure monopoly? Select one: a. Close substitutes b. Efficient advertiser c. Price taker d. Single seller

D.