MicroEcon - Chapter 12: practice exam

W/Q9 - At the profit-maximizing price and output, the amount of profit for the monopolist would be

$1,560

W/Q21 - At the profit-maximizing price and output, the amount of profit for the monopolist would be

$500

W/Q21 - The profit-maximizing output and price for this monopolist would be

3 and $400

W/Q9 - The profit-maximizing output and price for this monopolist would be

6 units and $400

A monopolist will charge the highest price it can get.

False

As a monopolist increases its output, it finds that its total revenue at first decreases, and that after some output level is reached, its total revenue begins to increase.

False

At which combination of price and marginal revenue is the price elasticity of demand less than 1?

Price equals $72; marginal revenue equals 2$18.

Answer this Question based on the demand and cost data for a pure monopolist given in the following table.

Table Output: 0 1 2 3 4 5 Price: $ 1,000 600 500 400 300 200 Total Cost: $ 500 520 580 700 1,000 1,500

Answer this Question based on the demand and cost data for a pure monopolist given in the following table.

Table Quantity Demanded: 0 1 2 3 4 5 6 7 8 9 10 Price: $ 700 650 600 550 500 450 400 350 300 250 200 Total Cost: $ 300 400 450 510 590 700 840 1,020 1,250 1,540 1,900

Which is one of the conditions that must be met before a seller finds that price discrimination is workable?

The seller must be able to segment the market.

A monopolist seeks maximum total profits, not maximum unit profits.

True

The dilemma of monopoly regulation is that the production by a monopolist of an output that causes no misallocation of resources may force the monopolist to suffer an economic loss.

True

The monopolist can increase the sales of its product if it charges a lower price.

True

The pure monopolist produces a product for which there are no close substitutes.

True

The weaker the barriers to entry into an industry, the more competition there will be in the industry, other things equal.

True

A monopolist can segment two groups of buyers of its product based on elasticity of demand. Assume that ATC remains constant. The monopolist will maximize profit by charging

a lower price to customers with an elastic demand and a higher price to customers with an inelastic demand

When the monopolist is maximizing total profits or minimizing losses,

average revenue is greater than marginal cost

A monopolist who is limited by the imposition of a government-set or regulated price to a fair return would sell the product at a price equal to

average total cost

At present output a monopolist determines that its marginal cost is $18 and its marginal revenue is $21. The monopolist will maximize profits or minimize losses by

decreasing price and increasing output

The supply curve for a pure monopolist

does not exist

The demand curve for the pure monopolist is

downsloping

A barrier to entry that significantly contributes to the establishment of a monopoly would be

economies of scale

The region of demand in which the monopolist will choose a price-output combination will be the

elastic one because total revenue will increase as price declines and output increases

When compared with the purely competitive industry with identical costs of production, a monopolist will charge a

higher price and produce less output

At an equilibrium level of output, a monopolist is not productively efficient because

the average total cost of producing the product is not at a minimum

W/Q21 - If the monopolist were forced to produce the socially optimal output by the imposition of a government-set price, the regulated price would have to be

$300

W/Q9 - The profit-maximizing price for this monopolist would be the

$400 price

Pure monopoly guarantees economic profits.

False

Rent-seeking expenditures that monopolists make to obtain or maintain monopoly privilege have no effect on the firm's costs.

False

The general view of economists is that a pure monopoly is efficient because it has strong incentives to be technologically progressive.

False

The monopolist determines the profit-maximizing output by producing that output at which marginal cost and marginal revenue are equal and sets the product price equal to marginal cost and marginal revenue at that output.

False

The purely competitive firm is more likely to be affected by X-inefficiency than a monopolist.

False

The regulated utility is likely to make an economic profit when price is set to achieve the most efficient allocation of resources (P = MC).

False

The supply curve for a monopolist is the upsloping portion of the marginal cost curve that lies above the average variable cost.

False

Which is true with respect to the demand data confronting a monopolist?

Marginal revenue decreases as average revenue decreases.

Which would be defining characteristics of pure monopoly?

No close substitutes for the product exist and there is one seller.

A discriminating monopolist who can segment its market based on elasticity of demand will charge a higher price to the customers with a less elastic demand and a lower price to customers with a more elastic demand.

True

A fair-return price for a regulated utility would have price set to equal average total cost.

True

A monopolist may create an entry barrier by price-cutting or substantially increasing the advertising of its product.

True

A monopolist will avoid setting a price in the inelastic segment of the demand curve and prefer to set the price in the elastic segment.

True

A purely competitive firm is a price taker, but a monopolist is a price maker.

True

In pure monopoly, there are strong barriers to entry.

True

One general policy option for a monopoly that creates substantial economic inefficiency and is long lasting is to directly regulate its prices and operation.

True

One of the economic effects of monopoly is the transfer of income from consumers to the owners of the monopoly.

True

Price discrimination occurs when a given product is sold at more than one price and these price differences are not justified by cost differences.

True

Resources are misallocated by monopoly because price is not equal to marginal cost.

True

When there are substantial economies of scale in the production of a product, the monopolist may charge a price that is lower than the price that would prevail if the product were produced by a purely competitive industry.

True

Answer this Question based on the following graph. a. The price and output combination for the unregulated profit-maximizing monopoly compared with the socially optimal price and output combination for the regulated monopoly would be, respectively, b. The dilemma of regulation that compares the fair-return price and output with the socially optimal price and output would be, respectively,

a. P4 and Q1 versus P2 and Q3 b. P2 and Q3 versus P3 and Q2

Which will tend to increase the inefficiencies of the monopoly producer?

rent-seeking behavior

A product's ability to satisfy a large number of consumers at the same time is called

simultaneous consumption

The analysis of monopoly indicates that the monopolist

will seek to maximize total profits