FINAL EXAM REVIEW (Ch. 14)

Granting a pharmaceutical company a patent for a new medicine will lead to

1.) A product that is priced higher than it would be without the exclusive rights 2.) Incentives for pharmaceutical companies to invest in research and development

Round-trip airline tickets are usually cheaper if you stay over a Saturday night before you fly back. What is the reason for this price discrepancy?

1.) Airlines are practicing imperfect price discrimination to raise their profits 2.) Airlines charge a different rate based on the different nature of peoples' travel needs. 3.) Airlines are attempting to charge people based on their willingness to pay

A movie theater can increase its profits through price discrimination by charging a higher price to adults and a lower price to children if it

1.) Can prevent children from buying the lower-priced tickets and selling them to adults. 2.) Has some degree of monopoly pricing power 3.) Can easily distinguish between the two groups of customers

A monopolist can sell 300 units of output for $45 per unit. Alternatively, it can sell 301 units of output for $44.60 per unit. The marginal revenue of the 301st unit of output is

= - $75.40 300 x $45 = $13,500 301 x $44.60 = $13,424.60 301 - 300 = 1 Marginal revenue = ($13,424.6 - $13,500) / 1 = - $75.40

Monopolies charge a price _____ than marginal cost while perfectly competitive firms charge a price _____ to marginal cost.

Higher Equal

How does a competitive market compare to a monopoly that engages in perfect price discrimination?

In both cases, total social welfare is the same.

For a monopolist, when does marginal revenue exceed average revenue?

Never

True/False: A monopoly firm maximizes profits by equating marginal revenue with marginal cost.

TRUE

True/False: Average revenue equals price for a monopolist.

TRUE

Monopoly

a firm that is the sole seller of a product without close substitutes

Natural Monopoly

a monopoly that arises because a single firm can supply a good or service to an entire market at a smaller cost than could two or more firms

Which of the following would be most likely to have monopoly power? a.) A national florist b.) An online bookstore c.) A local restaurant d.) A local electrical cooperative

d.) A local electrical cooperative

Monopolies face _____ _____ demand curves while perfectly competitive firms face ______ demand curves.

downward sloping horizontal

Monopolies can _____ _____ in the long run while perfectly competitive firms _____ _____.

earn profits break even

A firm cannot price discriminate if

it operates in a competitive market

A monopoly is an inefficient way to produce a product because

it produces a smaller level of output than would be produced in a competitive market

Price discrimination

the business practice of selling the same good at different prices to different customers