Chapter 13 Monopoly

(Figure: Maximize Monopoly Profits) Refer to the figure. The monopolist will maximize its profit by producing at output equal to:

Q2.

A monopolist maximizes profits where marginal revenue equals marginal cost.

True

A monopolistic industry will have lower output and higher prices than a competitive industry.

True

A monopoly is a firm with market power, and market power may arise from economies of scale, patent protection, and innovation.

True

A monopolist can raise its price further above marginal cost, the more ______ is the ______ for its product.

inelastic; demand

(Figure: Monopoly Markup) Refer to the figure. Consumer surplus under monopoly is represented by:

triangle abc.

(Figure: Monopoly Markup) Refer to the figure. Consumer surplus under competition is represented by:

triangle adf.

(Figure: Monopoly Markup) Refer to the figure. The deadweight loss attributable to monopoly is:

triangle cef.

For a monopolist, MR is always less than P because:

when a monopolist lowers the price to sell more units, it must lower the prices of all units sold.

(Figure: Maximum Willingness to Pay) Refer to the figure. What is the profit-maximizing quantity for this monopolist?

110

(Figure: Monopoly 8) If the government set price equal to average cost, the natural monopolist in this figure would produce:

14 units of output.

(Figure: Monopoly 8) The natural monopolist in this figure would produce:

9 units of output.

(Figure: Monopoly 6) If the market in this figure is a competitive market, consumer surplus is given by area(s):

A + B + C.

(Figure: Monopolist 3) In this figure, the monopolist's maximum profit is:

$45.

If this figure represents the demand and cost curves for a firm with market power, what price should the firm charge to maximize profits?

$60

Refer to the figure. The competitive industry level of output is:

80.

(Figure: Monopolist 3) In this figure, the profit-maximizing monopolist sells:

9 units of output at $11 per unit.

(Figure: Monopoly 6) If the market in this figure is a monopoly, the consumer surplus is area ______, and the deadweight loss is area ______.

A; C

A firm will attain more monopoly power as demand for its product becomes more elastic.

False

A firm with no competition faces a perfectly inelastic demand curve.

False

A monopoly maximizes profit by finding the output level where the difference between marginal revenue and marginal costs is as large as possible.

False

A profit-maximizing monopolist chooses the output level where MR = MC and chooses the corresponding price from the marginal revenue curve.

False

Deadweight loss is present in both competitive and monopoly markets.

False

For a monopoly, the entire consumer surplus is transferred to the monopolist as profit.

False

A government can maximize efficiency in monopoly markets by setting prices equal to the monopolist's average cost of production albeit at the cost of reduced long term innovation.

True

For a linear demand curve, the marginal revenue curve has:

twice the slope.

(Figure: Maximum Willingness to Pay) Refer to the figure. What is the maximum price that the consumer is willing to pay for 100 units?

$100

What is the profit or loss for this monopoly?

$100,000

(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: Monopoly Profits) Refer to the figure. The monopolist earns a profit of:

$420.

In this figure, the monopolist's marginal revenue curve is:

MR2.

(Figure: Monopoly Profits) Refer to the figure. What is the monopolist's optimal price and output level?

P = $16.50; Q = 40

(Figure: Maximize Monopoly Profits) Refer to the figure. The monopolist will maximize its profit by charging a price equal to:

P2.

Refer to the figure. Which of the following answers correctly indicates the profit earned by this monopolist at the profit-maximizing quantity?

area A

Refer to the figure. The monopolist's price markup is:

b - d.

Refer to the figure. Deadweight loss caused by monopoly pricing is represented by the area:

def.

Economists call a single firm that can supply the entire market at a lower cost than two or more firms a __________ monopoly.

natural

(Figure: Paint Market 2) If the fixed costs were halved, deadweight loss would:

not change.

A natural monopoly occurs when:

there are economies of scale over the relevant range of output.