Micro Chapter 13
A monopolist increased output by 100 units but cut prices by $20 to sell this additional output at $1,000 per unit. What is TRUE about marginal revenue?
MR cannot be calculated with the information given.
Which of the following statements is TRUE?
Market power may result from government regulations or patent protection.
(Figure: Monopoly Profits) Refer to the figure. The monopolist earns a profit of:
$420.
Under Michael Kremer's patent-buyout proposal, the government would buy the rights to the firm in this figure's patent for at least:
$50
In these figures, the markup of price over marginal cost for the relatively inelastic demand is ______, and the markup of price over marginal cost for the relatively elastic demand is ______.
$7.50; $3
Rex Pharma produces anti-acid medication that is sold in a monopoly market. ' Rex Pharma sells 10,000,000 pills for $12.50 per pill. If the pills were sold for the marginal cost of production of $0.50, Rex Pharma would be able to sell 25,000,000 pills. What is the deadweight loss of this monopoly market?
$90,000,000
Figure: Paint Market 2) What is the deadweight loss (if any) from the monopoly in this diagram relative to its optimum quantity?
$125,000
(Figure: Regulated versus Unregulated Monopolist) Refer to the figure. Calculate the change in consumer surplus from an unregulated monopoly to a regulated monopoly.
$2,800
GlaxoSmithKline (GSK) maximizes profit by producing a quantity of 800 pills where marginal cost is $2 and average cost is $4. Consumers are willing to pay as much as $10 per pill when the quantity supplied is 800 pills. What is the maximum amount of profit that GSK can earn under these conditions?
$4,800
(Figure: Regulated versus Unregulated Monopolist) Refer to the figure. Calculate the deadweight loss when this monopoly is unregulated.
$400
A monopolist sells in two different markets and charges the same price of $10 in both markets. In Market A, the demand curve is described by Q d = 50 - 2 P. In Market B, the demand curve is described by Q d = 60 - P. If the monopolist lowers prices by $1 in the market with the more elastic demand and raises prices by $1 in the market with the more inelastic demand curve, by how much does its total revenue change?
-$27
To maximize profit, the monopolist increases output:
until marginal cost is equal to marginal revenue.
Suppose that the government decided to reduce pharmaceutical patent protection by requiring companies to sell their drugs at marginal cost. What are the likely consequences of such a policy?
All of these statements are correct.
If the Bill and Melinda Gates Foundation were to buy out and destroy the patent for Combivir, which of the following would NOT be one of the effects?
Drug companies would have no incentive to create new and better drugs.
Which of the following statements are TRUE? I. Monopolists can raise prices as high as they want and still earn economic profits. II. Even with no competitors, firms face a downward-sloping demand curve. III. Just like competitive firms, monopolists maximize profits where marginal revenue equals marginal cost.
II and III only
Which of the following statements is TRUE? I. The deadweight loss from a monopoly refers to the loss in consumer surplus that is captured by the monopolist as profit. II. According to theory, if the government sets a natural monopolist's price equal to marginal cost, the socially optimum quantity of output will result. III. Deregulation of cable television caused higher prices and fewer programming choices for customers.
II only
Which statement is TRUE?
If the monopolist's marginal revenue is greater than its marginal cost, the monopolist can increase profit by selling more units at a lower price per unit.
If the monopolist's demand is given by P = 100 - Q, marginal revenue is given by:
MR = 100 - 2 Q.
When a single firm can supply the entire market at a lower cost than two or more firms, the firm can be said to have which of the following characteristics?
It is a natural monopoly.
Which one of the following statements is correct?
Monopoly profit encourages firms to research and develop new drugs.
What is the profit-maximizing price and output level for the monopolist in this figure?
P = $14; Q = 6
When a regulated monopolist maximizes consumer surplus, it produces at an optimal Q where:
P = MC
Which of the following is always TRUE for monopolies?
P > MR
(Figure: Maximize Monopoly Profits) Refer to the figure. The monopolist will maximize its profit by producing at output equal to:
Q 2.
California's electricity crisis as illustrated in the chapter is partially explained by the fact that generators of electric power:
gain market power when demand increases.
When demand is relatively elastic, monopolists will charge:
a lower markup.
Which of the following correctly defines a monopoly that arises from economies of scale?
a single firm that can supply the market at a lower cost than two or more firms
Typical evidence for the existence of market power would be market prices:
above production costs.
Which of the following is an example of a good with economies of scale?
autos
Refer to the figure. The monopolist's price markup is:
b - d
Monopolies will have more market power when one firm owns an input that is difficult to duplicate and the:
demand for the product is inelastic.
Deregulation of cable TV rates led to:
higher prices, more stations, and better quality programming.
A firm with monopoly power is able to set a markup price that is:
higher than prices on similar goods sold by competitive firms.
A monopolist can raise its price further above marginal cost, the more ______ is the ______ for its product.
inelastic; demand
With health insurance, medical treatments are often paid by someone other than the patient, which will make consumers with serious diseases relatively:
insensitive to the price of pharmaceuticals.
(Table: Profit-Maximizing Monopolist) Refer to the table. When this monopolist is producing 9 units,:
it could increase its profit by raising the price and selling fewer units.
Generating electricity:
no longer requires a natural monopoly, but the transmission and distribution of electricity remains a natural monopoly.
A monopoly is able to increase the markup of price over marginal cost:
when the demand is less price-elastic.
When demand is inelastic, revenues increase and production costs decrease as the quantity produced declines, total profits will always increase with a higher price. Therefore, monopolists:
will always raise their price until they get to an elastic portion of the demand curve.
When comparing a monopoly with a competitive industry, monopoly quantity:
will be lower, and monopoly price will be higher, than that of a competitive firm.
