Intermediate Microeconomics Exam 4

29) You produce stereo components for sale in two markets, foreign and domestic, and the two groups of consumers cannot trade with one another. If your firm practices third -degree price discrimination to maximize profits, the marginal revenue

All of the above

1) How much profit will the monopolist whose cost and demand curves are shown below earn at output Q1?

BCDE

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

Economies of scale

2) Which of the following is NOT true regarding monopoly?

Monopolist can charge as high a price as it likes.

19) Refer to Figure 10.1. The minimum feasible price is .

P3

23) Refer to Figure 10.3. What price will the monopsonist pay when maximizing profit?

P5

28) 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 steel at a lower price abroad than they will charge domestic users.

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

The firm should cut output.

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

The monopolist is not maximizing profit and should decrease output.

24) Predatory pricing is defined to be

behavior designed to drive out current competition.

30) For a perfect first-degree price discriminator, incremental revenue is

equal to the price paid for each unit of output.

22) A monopsonist will buy units of input than a competitor, and will pay per unit.

fewer; less

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

firmʹs output is smaller than the profit maximizing quantity.

20) 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.

27) 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.

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

intertemporal price discrimination.

34) In peak-load pricing

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

8) A monopolist has equated marginal revenue to zero. The firm has

maximized revenue.

18) 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 achieved by the firm in this market ________.

more, declines

5) To find the profit maximizing level of output, a firm finds the output level where

none of the above

7) If a monopolist sets her output such that marginal revenue, marginal cost and average total cost are equal, economic profit must be

positive.

14) A multiplant monopolist can produce her output in either of two plants. Having sold all of her output she discovers that the marginal cost in 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.

21) Refer to Figure 10.2. In moving from the competitive level of output and price to the monopoly level of output and price, the monopolist is able to add to producer surplus

the area BCEF less the area GFH.

31) When a monopolist engages in perfect price discrimination

the demand curve and the marginal revenue curve are identical.

6) The monopolist has no supply curve because

the quantity supplied at any particular price depends on the monopolistʹs demand curve.

17) You work as a marketing analyst for a pharmaceutical firm, and you are trying to gather information about the marginal cost of production for a competing firm. You know that they have a patent on a popular medication that sells for $20 per dose, and you believe the elasticity of demand for this product is roughly -4. Assuming the competing firm acts as a profit-maximizing monopolist, what is the competing firmʹs approximate marginal cost of production?

$15 per dose

10) A monopolist has set her level of output to maximize profit. The firmʹs marginal revenue is $20, and the price elasticity of demand is -2.0. The firmʹs profit maximizing price is approximately

$40

12) Refer to Scenario 10.2. What is the profit maximizing price?

$95.00

16) DVDs can be produced at a constant marginal cost of $5 per disk, 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. What are the price elasticities of demand for these two movies?

-1.33 and -1.2, respectively

32) 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 maximizes 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

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

0

11) Refer to Scenario 10.1. How much profit will she make?

1,296

13) Refer to Scenario 10.2. Suppose that in addition to the tax, a business license is required to stay in business. The license costs $1000. What is the profit maximizing level of output?

90

35) Which of the following statements is NOT compatible with explanations for why peak -load pricing is more profitable than charging a single price?

A) Consumer willingness to pay for the product varies a lot across different time periods. B) Marginal revenue changes a lot across different time periods. C) Marginal cost of production is much higher under peak demand. D) Marginal revenue must be the same across different time periods.

25) Suppose a firm has market power and faces a downward sloping demand curve for its product, and its marginal cost curve is upward sloping. If the firm reduces its price, then

A) the increase in consumer surplus is only due to the increase in quantity demanded. B) the sum of producer and consumer surplus remains the same, but surplus value is transferred from the producer to consumers. C) producer surplus increases due to new buyers, but the producer surplus from existing customers declines due to the lower price. D) the change in producer surplus is transferred to consumers.