Econ 202 Chapter 15
A monopolist maximizes profits by
producing an output level where marginal revenue equals marginal cost.
Price discrimination is the business practice of
selling the same good at different prices to different customers.
Which of the following is an example of public ownership of a monopoly?
U.S. Postal Service
In order to sell more of its product, a monopolist must
lower its price
Suppose a monopolist has a demand curve that can be expressed as P=90-Q. The monopolist's marginal revenue curve can be expressed as MR=90-2Q. The monopolist has constant marginal costs and average total costs of $10. The profit-maximizing monopolist will earn profits of
$1,600
A monopoly firm maximizes its profit by producing Q = 500 units of output. At that level of output, its marginal revenue is $30, its average revenue is $60, and its average total cost is $34. At Q = 500, the firm's total revenue is
$30,000
A monopoly firm maximizes its profit by producing Q = 500 units of output. At that level of output, its marginal revenue is $30, its average revenue is $60, and its average total cost is $34. The firm's profit-maximizing price is
$60
Suppose executives at an art museum know that 100 adults are willing to pay $12 for admission to the museum on a weekday. Suppose the executives also know that 200 students are willing to pay $8 for admission on a weekday. The cost of operating the museum on a weekday is $2,000. How much profit will the museum earn if it engages in price discrimination?
$800
Consider a local, privately-owned electrical cooperative named Poweshiek Power Company (PPCo). PPCo has just completed a clean-coal-burning electrical power plant in Iowa. Currently, PPCo can meet the electricity needs of all residents in the county. In fact, its capacity far exceeds the needs of the county. After just a few years of operation, the shareholders of PPCo experienced incredibly high rates of return on their investment due to the profitability of the corporation. Which of the following statements is most likely to be true? (i) New entrants to the market know they will have a smaller market share than PPCo currently has. (ii) PPCo is a natural monopoly. (iii) PPCo would experience higher profits if it were government-run.
(i) and (ii) only
Which of the following is not an example of price discrimination?
An ice cream parlor charges a higher price for ice cream than for sherbet
Which of the following statements is not correct?
Antitrust laws automatically prevent mergers between companies that produce similar products
How does a competitive market compare to a monopoly that engages in perfect price discrimination?
In both cases, total social welfare is the same
Monopoly pricing prevents some mutually beneficial trades from taking place. These unrealized, mutually beneficial trades are
a deadweight loss to society
Patents, copyrights, and trademarks
are examples of government-created monopolies. are examples of barriers to entry allow their owners to charge higher prices
Which of the following strategies is not an effective strategy to reduce monopoly inefficiency
breaking up a natural monopoly into more than one firm
A patent gives the inventor monopoly control over the patented good. Patents also
create incentives to develop new products
One method used to control the ability of firms to capture monopoly profit in the United States is through
enforcement of antitrust laws.
A monopolist's profits with price discrimination will be
higher than if the firm charged just one price because the firm will capture more consumer surplus.
Drug companies are allowed to be monopolists in the drugs they discover in order to
increase the availability of expensive but useful medications. increase the overall welfare of society through better health because drug companies continually produce better medications encourage research.
Because monopoly firms do not have to compete with other firms, the outcome in a market with a monopoly
is often not in the best interest of society
