quiz 1

Which of the following is a competitive buyer?

AE=ME

Club Med, which operates a number of vacation resorts, offers vacation packages at a lower price in the winter (i.e. off season) than in the summer. The practice is an example of:

peak-load pricing & intertemporal price discrimination

What is the profit maximizing price?

$52.50

After the imposition of a tax or $2 per unit of output, what is the profit maximizing price?

11

With the business license, what is the profit maximizing level of output?

90

Which of the following strategies are used by business firms to capture consumer surplus? A) price discrimination B) bundling C) two-part tariffs D) all of the above

ALL OF THE ABOVE

Which of the following is NOT true for monopoly.

At the profit maximizing output, price equals marginal cost.

When the movie "Jurassic Park" debuted in Westwood, California, the price of tickets were $7.50. After several months that ticket price had fallen to $4. This is an example of A) peak-loads pricing B) second-degree discrimination C) a two-part tariff D) tying E) NONE

NONE.

Which of the following is NOT associated with a high degree of monopoly power?

Significant price competition among firms in the market.

Which of the following is true at the output level where P=MC?

The monopolist is not maximizing profit & should decrease output.

In some cases, firms that are accused of antitrust violations by federal authorities will plead guilty to the criminal charges in order to avoid facing the same charges in a private or civil trial. Why?

The penalties for a conviction in a civil or private case are treble damages, or three times larger than the penalties in a criminal or public case.

There are two satellite providers in the US market, Sirius and XM Radio. The firms are proposed a merger, and it appears that the federal government will allow the merger to occur. Although the merger will create a single seller in this market, the existence of a monopoly may not have much impact on US consumers. Which of the following statements are plausible reasons for the limited impact of the proposed merger?

There are very large fixed costs providing satellite radio, and the industry may be a natural monopoly. One seller may be able to operate at a lower cost than two sellers. Although there will be one seller of satellite radio, there are other forms of radio broadcasts available to US consumers and demand for satellite radio may be relatively elastic. The merged firm will operate at higher capacity and may be able to reduce costs through learning by doing which will benefit US consumers. ALL OF THE ABOVE

Third degree price discrimination involves

changing different prices to different groups based upon differences in elasticity of demand.

At the profit maximizing level of output, demand is:

elastic, but not infinitely elastic.

The degree of monopsony power that a firm enjoys is determined by

elasticity of market supply, number of buyers in the market, and how buyers interact.

Under perfect price discrimination, consumer surplus

equals ZERO

In oligopsony market:

there are a few buyers and many sellers

In a market with a bilateral monopoly:

there is a single buy & a single seller.

A doctor charges two different prices for medical services, and the price level depends on the patient's income such that wealthy patients are charged more than the poorer ones. This pricing scheme represents a form of

third-degree price discrimination

A manufacturer of digital music players uses a proprietary file format that is not used by the other firms in the market. This action by the firm may be an example of using a _____ to reduce the number of firms in the market and to maintain a relatively inelastic demand for its products

barrier to entry

For a monopolist, changes in demand will lead to changes in

both price & quantity

A local restaurant offers an all you can eat salad bar for $3.49. However with any sandwich a customer can add the all you can eat salad bar for $1.49. This is an example of

bundling

A local restaurant sells strawberry pie for $3 per slice. However, if you order the prime rib dinner, you get a slice of pie for only a dollar. This is an example of

bundling

Which of the following is NOT a condition for third degree price discrimination?

economies of scale

Compared to a competitive red herring industry, the monopolistic red herring industry

produces less output at a higher price

Assume that a firm's marginal cost is $10 and the elasticity of demand is -2. We can conclude that the firm's profit maximizing price is approximately

$20

A monopolist has set her level of output to maximize profit. The firm's marginal revenue is $20 & the price of elasticity of demand is -2.0. The firm's profit maximizing price is approximately:

$40

Tax of $5 imposed, how much profit does the monopolist earn?

$4050

How much profit does the monopolist earn?

$4512.50

The marginal cost of a monopolist is constant and is $10. The marginal revenue curve is given as follows: MR=100-2Q The profit maximizing price is:

$55

Tax of $5 imposed by state, what is the profit maximizing price?

$55.

The percentage "markdown" due to monopsony power is equal to

(MV-P)/P

A 10 percent decrease in advertising results in a 5 percent sales decrease. The advertising elasticity of demand is

-0.5

DVDS can be produced at a constant marginal cost of $5 per disk, and Roaring Lion Studios is releasing DVDs for its last two major films. The DVD for Rameau 17 is priced at $20 per disk and the DVD for Schreck 10 is priced at $30 per disk. What are the price elasticites of demand for these 2 movies?

-1.33 & -1.2, respectively

Your local grocery store offers a coupon that reduces the price of milk during the coming week. The regular retail price of milk in the store is $3.00 per gallon and the coupon price is $2.00 per gallon for the next week. If the store maximized profits and the price elasticity of demand for milk is -2 for coupon users, what is the price elasticity of demand for non-users?

-1.5

One Guy Pizza's advertising expenditures are $1200 and sales are $30000. When the advertising expenditure increases to $1400, pizza sales increase to $32000. The arc advertising elasticity of demand is approximately

0.4

How much profit will she make?

1,296

What is the profit maximizing price?

10

A monopolist faces the following demand curve, marginal revenue curve, total cost curve, & marginal cost curve for its product: Q=200-2P MR = 100-Q TC= 5Q MC = 5 What level of output maximizes total revenue?

100

The demand curve and marginal revenue curve for red herrings are given as follows: Q = 250-5P MR = 50-.04Q What level of output maximized revenue?

125

At the profit maximizing level of output, what is the level of consumer surplus?

1800

DVDS can be produced at a constant marginal cost of $10 per disk, and Roaring Lion Studios is releasing DVDs for its last two major films. The DVD for Rameau 17 is priced at $20 per disk and the DVD for Schreck 10 is priced at $30 per disk. What are the Lerner indices for these two movies?

2 and 3, respectively

The price of her product will be:

22

How many ink pads will be produced to maximize profit?

250

How many garden hoses should be produced in California in order to maximize profits?

3

What is profit maximizing level output?

30

John is the manufacturer of red rubber balls (Q). He has a red rubber ball manufacturing plant in California, Florida, & Montana. The total cost of producing red rubber balls at each of the three plants is given by the following table. If red rubber balls can produced at any of the three plants, what is the marginal cost of 5th red rubber ball?

4

The price elasticity of demand for nursery products is -10. The advertising elasticity of demand is 0.4. Using the Rule of Thumb for Advertising" the profit maximizing level of advertising will be set at ____ of sales.

4 percent

Maui Macadamia Inc has a monopoly in the macadamia nut industry. The demand curve, marginal revenue and marginal cost curve for macadamia nuts are given as follows: P=360-4Q MR=360-8Q MC=4Q What level of output maximizes the sum of consumer surplus and producer surplus?

45

A firm produces garden hoses in California and in Ohio. The marginal cost of producing garden hoses in the two states & the marginal revenue from producing garden hoses are given in the following table. From the perspective of the firm, what is the marginal cost of the 5th garden hose?

5

Suppose a tax of $2 per unit is imposed on the red rubber ball producers. What level of output maximizes profit?

5

The deadweight loss from monopoly is

5

The marginal cost of red herrings is given as MC = 0.6Q. What is the profit maximizing level of output?

50

The marginal revenue of green ink pads is given as follows: MR=2500-5Q The marginal cost is 5Q How many ink pads will be produced to maximize revenue?

500

At the profit maximizing level of output, what is the level of producer surplus?

5400

The demand curve and marginal revenue curve for red rubber balls are given as follows" Q = 16 - p MR = 16-2Q What level of output maximizes profit?

6

The demand for tickets to the Meat Loaf concert (Q) is given as follows: Q= 120,000-2000P The marginal revenue is given as: MR = 60 - .001Q The stadium at which the concert is planned holds 60,000 people. The marginal cost of each additional concert goer is essentially zero up to 60,000 fans, but becomes infinite beyond that point. Given the info above, what are the profit maximizing numbers of tickets sold & the price of tickets.

60,000 & $30

Barbara is a producer in a monopoly industry. Her demand curve, total revenue curve, marginal revenue curve and total cost curve are given as follows: Q= 160-4P TR= 40Q-0.25Q^2 MR= 40-0.5Q MC=4 How much output will Barbara produce?

72

Suppose there are seven firms in a market where the three largest firms supply 20% of the market-clearing quantity and the other four firms supply 10% of the market-clearing quantity. What is the 5-firm concentration ratio (i.e> the share of total sales controlled by the 5 largest firms in the market)?

80%

Suppose that a tax of $5 for each unit produced is imposed by state government. What is the profit maximizing level of output?

90

At the profit maximizing level of output, what is the deadweight loss?

900

What is the profit maximizing level of output?

95

The pricing technique known as tying A) permits a firm to meter demand B) permits a firm to practice price discrimination C) enables a firm to extend its monopoly power to new markets D) all of the above

ALL OF THE ABOVE

You produce stereo components for sale in two markets, foreign & domestic, and the 2 groups of consumers cannot trade with one another. If your firm practices third-degree price discrimination to maximize profits, the marginal revenue A) in the foreign market will equal the marginal cost. B) in the domestic market will equal marginal cost. C) in the domestic market will equal the marginal revenue in the domestic market D) all of the above

ALL OF THE ABOVE

I. A firm can exert monopoly power if and only if it is the sole producer of a good. II. The degree of monopoly power a firm possesses can be measures using the Lerner Index: L = (P-AC)/AC

BOTH ARE FALSE

I. If the market supply is perfectly elastic, then a few buyers with monopsony power can achieve the same percentage mark-down in the purchase prices as a pure monopsonist. II. The deadweight loss associated with a monopsony declines as the market supply curve becomes more elastic

BOTH ARE TRUE

I.To maximize profit, a firm will advertise more when the advertising elasticity is larger. II.To maximize profit, a firm will advertise more when the price elasticity of demand is smaller

BOTH TRUE

Bridge Coal Company is the only employer in a remote and mountainous region of the country, so the firm is monopsony buyer of labor in the market. If the local population declines and there are fewer qualified coal miners available, which of the curves used to determine the monopsony outcome in this market shifts?

Both the ME and AE curves

Albatross Software has two main products: Windsong & Sunburst

Bundling these two software products is not likely to be profitable because the demands are positively correlated

Suppose that a firm can produce its output at either of two plants. If profits are maximized, which of the following statements is true? A) the marginal cost at the first plant must equal the marginal revenue. B) the marginal cost at the second plant must equal marginal revenue. C) the marginal revenue cost at the two plants must be equal. D) ALL OF THE ABOVE

D) ALL OF THE ABOVE

The monopoly supply curve is the A) same as the competitive market supply curve. B) portion of marginal costs curve where marginal costs exceed the minimum value of average variable costs. C) result of market power & production costs. D) NONE OF THE ABOVE

D) NONE OF THE ABOVE

To find the profit maximizing level of output, a firm finds the output level where A) price equals marginal cost B) marginal revenue & average total cost C) price equals marginal revenue D) all of the above E) none of the above

E) NONE OF THE ABOVE

Automobile manufacturers commonly sell new car models at the full suggested retail price during the first few years the car is on the market, and they do not offer rebates or discounts. After the initial sales period, the manufacturers typically offer rebates or discounts on these models. The marginal cost of manufacturing the cars is constant across time. Which of the following statements is true?

Early buyers have higher reservation prices for new models, and the manufacturers maximize profits by changing these buyers a higher price.

Which factors determine the firm's elasticity of demand?

Elasticity of market demand, number of firms, and the nature of interaction among firms.

Which of the following statements about natural monopolies is true?

For natural monopolies, marginal cost is always below average cost.

Compared to the equilibrium price & quantity sold in a competitive market, a monopolist will charge a ___ price & sell a ___ quantity.

HIGHER; SMALLER

I. To maximize profit, a firm will increase its advertising expenditures until the last dollar of advertising generates an additional dollar of revenue. II. The full marginal cost of advertising is the sum of the dollar spent directly on advertising and the marginal production cost that results form the increased sales that advertising brings about.

I FALSE II TRUE

Use the following two statements to answer this question: I. For a monopolist, at every output level, average revenue is equal to price. II. For a monopolist, at every output level, marginal revenue is equal to price.

I TRUE II FALSE

I. Cartel activities like price fixing and other forms of collusion are never allowed under US antitrust laws. II. The Sherman Act applies to the firms that operate in the US markets, but the law does not apply to foreign governments.

II TRUE I FALSE

Suppose that in addition to the tax, a business license is required to stay in business. The license costs $1000. What happens to profit?

It decreases by $1000

DVDs can be produced at a constant marginal cost, and Roaring Lion Studios is releasing the DVDs for its last two major films. The DVD for Rambeau 17 is priced at $20 per disk, and the DVD for Schreck 10 is priced at $30 per disk. If the Lerner indices for Rambeau 17 divdied by the Lerner index for Schreck 10 equal 0.5, what is the constant marginal cost of producing both DVDs

MC=$15

Bridge Coal Company is the only employer in a remote and mountainous region of the country, so the firm is monopsony buyer of labor in the market. If the price of coal increases, then the firm's

ME curve shifts leftward

If there are open first class seats available on a particular flight, some airlines allow customers with coach (discount) tickets to upgrade to first-class tickets during the electronic check-in process. Suppose the regular price of a first class ticket is $800, the total price of the upgrade ticket (original price plus the upgrade) is $400, the marginal cost of serving both types of customers (full-fare and upgrade first class flyers) is $100 and the airline maximized profits. Which of the following statements is true?

MR must be the same for both full-fare and upgrade customers.

A firm sells an identical product of two groups of consumers, A & B. The firm has decided that third-degree price discrimination is feasible and wishes to set prices that maximize. Which of the following best describes the price and output strategy that will maximize profits?

MRA=MRB=MC

Which of the following is NOT true regarding monopoly?

Monopolist can charge as high a price as it likes.

In the personal computer market, some large manufacturers are able to buy computer components (e.g. disk drives, flat-screen monitors, and memory chips) and software at a lower prices than smaller firms in the market. This outcome indicates that the large firms enjoy some degree of ____ in this market

Monopsony power

If red rubber balls can be produced at any of the 3 plants, and John decides to produce 1 red rubber ball, at which plant will he produce it?

Montana

Bindy, an 18 year old high school graduate, and Luciana, a 40 year old college graduate, just purchased identical hot new sports cars. Acme Insurance charges a higher rate to insure Bindy than Luciana. This practice is an example of A) collusion B) price discrimination C) two-part tariff D) bundling E) NONE

NONE

The price of an on-campus parking from 8-5 Mon-Fri is $3. From 5-10pm, Monday-Friday, the price is $1. At all other times parking is free. This is an example of: A) bundling B) second-degree price discrimination C) a two part tariff D) tying E) NONE

NONE

Suppose a firm produces identical goods for two separate markets & the practices third-degree price discrimination. In the first market, the firm chargers $30 per unit & it charges $22 per unit in the second market. Which of the following represents the ratio of price elasticities of demand in the two markets?

NONE OF THE ABOVE

Roaring Lion Studios can produce DVDs at a constant marginal cost of $5 per disk, and the studio has just releasing the DVD for its latest hit film, Ernest Goes to the Hamptons. The retail price of the DVD is $25 and the elasticity of demand for this film is -2. Has the studio selected the profit maximizing retail price for this DVD?

No, the retail price too high.

Under perfect price discrimination, marginal profit of each level of output equal

P-MC

Adriana is a monopolist producing green calculators. The average and marginal cost curves and average and marginal revenue curves for her product are given as follows: AC=Q + (10,000/Q) MC=2Q AR= 30-(Q/2) MR = 30-Q Suppose that the regulatory agency sets your price where average revenue equals average cost. How much profit will Adriana make?

She will break even

Suppose that the marginal cost of an additional ton of steel produced by a Japanese firm is the same whether the steel is set aside for domestic use or exported abroad. If the price elasticity of demand for steel is greater abroad than it is in Japan, which of the following will be correct?

The Japanese firm will sell more steel at a lower price abroad than they will charge domestic users.

What is the value of the Lerner index under perfect competition?

ZERO

For most residential telephone service, people pay a monthly fee to have a hookup to the telephone company's line plus a fee for each call actually made. using this pricing scheme, the telephone company is using

a two part tariff

The local cable TV company charges a hook up fee of $30 per month. Customers can then watch programs on a pay per view basis. This is an example of

a two part tariff

Deadweight loss from monopoly power is expressed on a graph as the area between the

average revenue curve and the marginal revenue curve bounded by the quantities produced by competitive and monopoly markets

Predatory pricing is defined to be

behavior designed to drive out current competition

Season ticket holders for the St. Louis Rams received a surprise when they read the applications forms to renew their season tickets. In order to get their season ticket to the Rams' home games, they also had to buy tickets to the preseason games. Many season ticket holders grumbled about this practice as an underhanded way for the St. Louis Rams to get more money from its season ticket holders. This practice is an example of:

bundling

A firm setting a two part tariff with only one customer should set the entry fee equal to

consumer surplus

Bundling products makes sense for the seller when

consumers have heterogeneous demands & firms cannot price discriminate.

For a two part tariff imposed on two consumers, the entry fee is based on the

consumers surplus of the customer with lower willingness to pay.

A multiplant firm has equated marginal costs at each plant. By doing this

costs are minimized given the level of output.

In a bilateral monopoly with one buyer and one seller, the monopoly power of the seller and the monopsony power of the buyer tend to:

counter act one another

Bundling raises higher revenues than selling the goods separately when

demands for two products are negatively correlated.

Which of the following is true of the antitrust laws in the US? They are

designed to promote a competitive economy

Bundling is effective when the demands for the bundled products are ___ & ___ correlated.

different & negatively

Second degree price discrimination is the practice of charging

different prices for different quantity blocks of the same good or service

Suppose that the firm chooses to produce 200 ink pad. At this level of output the demand for ink pads is

elastic

You interview with an athletic footwear manufacturer that has annual advertising expenditures of $32 million and total sales revenue of $100 million, and the firm selects the profit maximizing level of advertising expenditures. If the advertising elasticity of demand is 0.4 then you know that "Rule of Thumb for Advertising" implies that the demand for the firm's products is

elastic

At the profit maximizing level of output, demand is (red rubber balls):

elastic, but not infinitely elastic.

When a firm charges each customer the maximum price that the customer is willing to pay, the firm

engages in first-degree price discrimination

For a perfect first-degree price discrimination, incremental revenue is

equal to the price paid for each unit of output.

For a competitive buyer, the marginal expenditure per unit of an input

equals the average expenditure per unit

The Acme Oil Company is vertically integrated firm. It explores for and extracts crude oil. It also refines the crude oil into gasoline and other products, and sells these products to consumers. There are many other firms that extract and sell crude oil so that the market for crude oil is regarded by Acme Oil as competitive. The internal price that Acme Oil uses when the crude oil that it extracts is "sold to" one of its refineries:

equals the market price for crude oil

For a monopsony buyer, the marginal expenditure per unit of an input

exceeds the average expenditure per unit

A monopsonist will buy ____ units of input than a competitor, and will pay ____ per unit

fewer;less

Assume that a profit maximizing monopolist is producing a quantity such that marginal revenue exceeds marginal cost. We can conclude that the:

firm's output is smaller than the profit maximizing quantity.

A firm is charging a different price for each unit purchased by a consumer. This is called

first degree price discrimination

If the regulatory agency sets a price where AR=AC for a natural monopoly, output will be

greater than the monopoly profit maximizing level and less than the competitive level

A third-degree price discriminating monopolist can sell its output either in the local market or on an internet auction site (or both). After selling all of its output, the firm discovers that the marginal revenue earned in the local market was $20 while its marginal revenue on the internet auction site was $30. To maximize profits the firm should

have sold less output in the local market and more on the Internet auction site.

The monopolist that maximized profit

imposes a cost on society because the selling price is above marginal cost

Suppose that the municipal stadium authority imposed a tax of $10 per ticket on the concert promoters. Given the info above, the profit maximizing ticket price would

increase by $5

Suppose a tax of $5 per unit of output is imposed on red herring producers. The price of red herring will

increase by less than $5

Bridge Coal Company is the only employer in a remote and mountainous region of the country, so the firm is monopsony buyer of labor in the market. If the price of coal increases, then the firm's quantity of labor demanded _____ and the equilibrium wage ____

increases;increases

If a monopolist's profits were taxed away and redistributed to its customers,

inefficiency would remain because output would be lower than under competitive conditions.

When a company introduces new audio products, it often initially sets the price high & lowers the price about a year later. This is an example of

intertemporal price discrimination

Rather than charging a single price to all customers, a firm charges a higher price to men and a lower price to women. By engaging in this practice, the firm:

is attempting to convert consumer surplus into producer surplus.

The regulatory lag:

is likely to occur with the rate-of-return regulation

Which of the following is NOT an example of buyer interaction that may improve the effectiveness of monopsony power?

labor unions that negotiate wage contracts for many workers who are employed by one firm

When the demand curve is downward sloping marginal revenue is:

less than price

The _____ elastic a firm's demand curve, the greater its

less; monopoly power

You produce stereo components for sale in two markets, foreign & domestic, and the two groups of consumers cannot trade with one another. You charge the higher price in the market with the

lower own price elasticity of demand (more inelastic demand)

What is the key characteristic of profit maximizing price discrimination that distinguishes interemporal price discrimination from peak-load pricing?

marginal cost are independent across time period under peak-load pricing.

We may the tempted to determine the optimal level of advertising expenditures at the point where the last dollar spent on advertising generates an additional dollar of sales revenue. In general, this rule will not allow the firm to maximize profits because it ignores the

marginal cost of additional sales generated by the adverstising

In peak-load pricing

marginal revenue in the peak period is greater than the off-peak period.

Which of the following is true when the government imposes a price ceiling on a monopolist?

marginal revenue is kinked-horizontal and then downward sloping

A monopolist has equaled marginal revenue to zero. The firm has:

maximized revenue.

Suppose we advertise up to the point where the last dollar spent on advertising generates an additional dollar of sales revenue. If the full marginal cost of advertising is greater than 1, then we will generate

more output than the profit maximizing level

Suppose Orange Inc sells MP3 players and initially has monopoly power because there are only a few close substitutes available to consumers. As more types of MP3 players are introduced into the market, the demand facing Orange becomes ____ elastic and the Lerner index achieve by the firm in this market ______.

more, declines

With respect to monopolies, deadweight loss refers to the

net loss in consumer and producer surplus due to a monopolist's pricing strategy/policy.

What is the profit maximizing condition for a vertically integrated firm?

net marginal revenue equals the marginal cost of each intermediate good.

When a per unit tax is imposed on the sale of a product of a monopolist, the resulting price increase will:

not always be less than the tax.

In a bilateral monopoly, equilibrium price will:

not be determined by a simple rule.

A firm has two customers and creates a two-part tariff with a usage fee (P) that exceeds the marginal cost of production and leaves each customer with positive consumer surplus such that CS2>CS1>0. If the firm sets the entry fee equal to CS2, then the number of customers that actually buy the product is equal to:

one

Large manufacturing firms that buy many different parts or components (e.g. auto manufacturers) can choose which parts to buy from other firms and which parts to make in their own factories. These manufacturers may be able to use monopsony power to reduce the price paid outside suppliers for parts that are:

only used in their cars so that there is one buyer and a few sellers.

A form of implicit collusion in which one firm consistently follows the actions of another firm is:

parallel conduct

When a drug company develops a new drug it is granted a ____ making it illegal for other firms to enter the market until the ____ expires.

patent;patent

A local restaurant offers "early bird" price discounts for dinners ordered from 4:30-6:30. This is an example of

peak-load pricing

A local theater charges $5 for every matinee (daytime) ticket, but the ticket prices are much higher during the evening. This is an example of

peak-load pricing

Which of the following product pairs would NOT be a good candidate for price discrimination

pencils & paper

If a monopolist sets her output such that marginal revenue, marginal cost & average total costs are equal, economic profit must be:

positive

In 1994, the Walt Disney Corp ran a special promo on tickets to Disneyland. Residents of southern Cali who lived near the park were offered admission at the special price of $22. Other visitors to Disneyland were charged about $30. This practice is an example of:

price discrimination

McDonald's restaurant located near the high school offered a Tuesday special for high school students. If high school students showed their ID cards, they would be given 50 cents off any medium combo meal. This practice is an example of:

price discrimination

A multi-plant monopolist can producer her output in either of two plants. Having sold all of her output she discovers that the marginal cost in the plant 1 is $30 while the marginal cost in plant 2 is $20. To maximize profits the firm will

produce less output in plant 1 and more in plant 2.

The situation in which buyers are able to affect the price of a good is reffered to as ____ power

purchasing power

As the manager of a firm you calculate the marginal revenue is $152 and the marginal cost is $200. You should:

reduce output until marginal revenue equals marginal cost.

The cartel of oil-producing nations (OPEC) once controlled about 80% of the world petroleum market, but OPEC's market share has declined to about half of its former level. This outcome is a good example of how firms may have

relatively high short run monopoly power that declines in the long run.

The maximum price that a consumer is willing to pay for each unit bought is the ___ price

reservation

The manager of a firm is attempting to practice third degree price discrimination. She has equated the marginal revenue in each of her markets. By doing this her

revenues are maximized given her level of output.

Many cellular phone rate plans are structured as a combination of ____ price discrimination

second-degree and third-degree

An electric power company uses block pricing for electricity sales. Block pricing is an example of:

second-degree price discrimination

Discrimination based upon the quantity consumed is referred to as the ____ price.

second-degree.

Monopoly power results from the ability to

set price above marginal cost

What is net marginal revenue?

the additional revenue the firm earns from an extra unit of an internally produced intermediate input.

Grocery store chains advertise more than convenience stores because

the advertising elasticity of demand for convenience store is near zero and is much smaller than for grocery store chains.

The Lerner index measures

the amount of monopoly power a firm chooses to exercises when maximizing profits.

Which of the following is not an important antitrust law?

the consumer protection act of 1932

When a monopolist engages in perfect price discrimination,

the demand curve and marginal revenue curve are identical.

A monopolist has determined that at the current level of output the price elasticity of demand is -0.15. Which of the following is true?

the firm should cut output

The more elastic the demand facing a firm

the lower the value of the Lerner index

Mixed bundling is more profitable than pure bundling when

the marginal cost of each good being sold is positive & the consumers reservation values of each good being sold are not perfectly negatively correlated with one or another.

Unlike a competitive buyers,

the price that a monopsonist pays depends on the number of units purchased

The monopolist has no supply curve because

the quantity at any particular price depends on the monopolist's demand curve.

The maximum price that a consumer is willing to pay for a good is called:

the reservation price

The Acme Oil Company is vertically integrated firm. It explores for and extracts crude oil. It also refines the crude oil into gasoline and other products, and sells these products to consumers. The internal price that Acme Oil uses when the crude oil that it extracts is "sold" to on of the refineries is called

the transfer price

A tennis pro charges $15 per hour for tennis lesson for children & $30 per hour for adults. This tennis pro is practicing

third-degree price discrimination

Some grocery stores are now offering customers coupons which entitle them to a discount one certain items on their next visit when they go through the check out line. This practice is an example of

third-degree price discrimination

The firms in a market have decided not to compete with one another and have agreed to limit output & raise price.

this practice is known as collusion and is illegal in the US.

Suppose that the competitive market for rice in Japan was suddenly monopolized. The effect of such a change would be:

to decrease the consumer surplus of Japanese rice consumers

A national chain of bookstores has initiated a frequent buyer program. If you buy a frequent buyer card for $10 you are entitled to a 10 percent discount on all purchases for 1 year. This practice is an example of

two part tariff

A pricing strategy that requires consumers pay an up front fee plus an additional fee for each unit of product purchased is a

two part tariff

An amusement park charges an entrance fee of $75 per person plus $2.50 per ride. This is an example of

two-part tariff

Under which of the following scenarios is it most likely that monopoly power will be exhibited by firms?

when there are few firms in the market and the demand curve face by each firm is relatively inelastic.