Monopoly 3901
23.
A monopolist produces an output level where marginal revenue equals marginal cost and charges
a price where
marginal cost equals average total cost.
a.
True
b.
False
24.
Like competitive firms, monopolies choose to produce a quantity in which marginal revenue
equals marginal cost.
a.
True
b.
False
25.
Like competitive firms, monopolies charge a price equal to marginal cost.
a.
True
b.
False
26.
A monopolist produces where P > MC = MR.
a.
True
b.
False
27.
A monopolist produces where P = MC = MR.
a.
True
b.
False
28.
During the life of a drug patent, the monopoly pharmaceutical firm maximizes profit by producing
the quantity at
which marginal revenue equals marginal cost.
a.
True
b.
False
29.
At the profit-maximizing quantity of output for a monopolist, average revenue, marginal revenue,
and price are all
equal.
a.
True
b.
False
30.
A monopolist’s profit is equal to (Price – Marginal Cost) × Quantity.
a.
True
b.
False
31.
A monopolist does not have a supply curve because the firm’s decision about how much to supply
is impossible to separate from the demand curve it faces.
a.
True
b.
False
32.
A monopolist’s supply curve is vertical.
a.
True
b.
False
33.
A monopolist’s supply curve is horizontal.
a.
True
b.
False
34.
The socially efficient quantity is found where the demand curve intersects the marginal cost
curve.
a.
True
b.
False
Monopoly 3905
35.
The profit that a monopolist earns represents a loss to society that is measured through
deadweight loss.
a.
True
b.
False
36.
Deadweight loss measures the loss in society’s welfare that occurs because a monopolist does
not produce the socially efficient level of output.
a.
True
b.
False
37.
Deadweight loss measures the loss in society’s welfare that occurs because a monopolist can
earn profits without the concern of new firms entering its industry.
a.
True
b.
False
38.
The deadweight loss for a monopolist equals one-half of its profits for any given level of output.
a.
True
b.
False
39.
In a monopoly market, the socially efficient quantity of output is typically higher than the profit-
maximizing quantity
of output for the monopolist.
a.
True
b.
False
40.
A monopoly creates a deadweight loss to society because it earns both short-run and long-run
positive economic
profits.
a.
True
b.
False
41.
A monopoly creates a deadweight loss to society because it produces less output than the socially
efficient level.
a.
True
b.
False
42.
Suppose a profit-maximizing monopolist faces a constant marginal cost of $10, produces an output
level of 100 units,
and charges a price of $50. The socially efficient level of output is 200 units.
Assume that the demand curve and
marginal revenue curve are the typical downward-sloping
straight lines. The monopoly deadweight loss equals $4,000.
a.
True
b.
False
43.
Suppose a profit-maximizing monopolist faces a constant marginal cost of $10, produces an output
level of 100 units,
and charges a price of $50. The socially efficient level of output is 200 units.
Assume that the demand curve and
marginal revenue curve are the typical downward-sloping
straight lines. The monopoly deadweight loss equals $2,000.
a.
True
b.
False
44.
Suppose a profit-maximizing monopolist faces a constant marginal cost of $20, produces an output
level of 100 units,
and charges a price of $50. The socially efficient level of output is 200 units.
Assume that the demand curve and
marginal revenue curve are the typical downward-sloping
straight lines. The monopoly deadweight loss equals $1,500.
a.
True
b.
False
45.
Goods that do not have close substitutes have downward-sloping demand curves.
a.
True
b.
False
46.
Price discrimination can increase both the monopolist’s profits and society’s welfare.
a.
True
b.
False
47.
In order for a firm to maximize profits through price discrimination, the firm must have some
market power and be
able to prevent arbitrage.
a.
True
b.
False
48.
Price discrimination is prohibited by antitrust laws.
a.
True
b.
False
49.
A monopolist earns higher profits by charging one price than by practicing price discrimination.
a.
True
b.
False
50.
By selling hardcover books to die-hard fans and paperback books to less enthusiastic readers, the
publisher is able to
price discriminate and raise its profits.
a.
True
b.
False
51.
Movie theatres charge different prices to different groups of people based on the differing
marginal costs that exist
from group to group.
a.
True
b.
False
52.
Airlines often separate their customers into business travelers and personal travelers by giving a
discount to those
travelers who stay over a Saturday night.
a.
True
b.
False
53.
University financial aid can be viewed as a type of price discrimination.
a.
True
b.
False
54.
By offering lower prices to customers who buy a large quantity, a monopoly is price
discriminating.
a.
True
b.
False
55.
A monopolist that can practice perfect price discrimination will not impose a deadweight loss on
society.
a.
True
b.
False
56.
Antitrust laws give the Justice Department the authority to challenge potential mergers between
companies in an
effort to safeguard society from monopoly power.
a.
True
b.
False
57.
Some companies merge in order to lower costs through efficient joint production.
a.
True
b.
False
58.
If the government regulates the price a natural monopolist can charge to be equal to the firm’s
average total cost, the firm has no incentive to reduce costs.
a.
True
b.
False
59.
If the government regulates the price a natural monopolist can charge to be equal to the firm’s
marginal cost, the government will likely need to subsidize the firm.
a.
True
b.
False
60.
The proper level of government intervention is unclear when dealing with a monopoly.
a.
True
b.
False
61.
A common solution to monopoly in European countries is public ownership.
a.
True
b.
False
62.
The best solution to the problem of welfare loss from monopoly is public ownership.
a.
True
b.
False
63.
The government may choose to do nothing to reduce monopoly inefficiency because the “fix”
may be worse than the problem.
a.
True
b.
False
64.
Government intervention always reduces monopoly deadweight loss.
a.
True
b.
False
65.
Government intervention is always preferable to doing nothing when reducing the social
inefficiencies of monopoly.
a.
True
b.
False
66.
Firms with substantial monopoly power are quite common because many goods are unique.
a.
True
b.
False
67.
Describe how government is involved in creating a monopoly. Why might the government create
one? Give an
example.
68.
What is the defining characteristic of a natural monopoly? Give an example of a natural monopoly.
69.
In the market for “home heating” consumers typically have several options (e.g., electricity,
heating fuel, natural gas,
propane, etc.), yet we often think of firms in this industry as behaving like
monopolists. Discuss the context in which
your electricity provider is a monopolist. Is this
characterization universally applicable? Explain your answer.
70.
There has been much discussion of deregulating electricity and natural gas delivery companies in
the United States. Discuss the likely effect of deregulation on prices in these two industries.
71.
Explain how a profit-maximizing monopolist chooses its level of output and the price of its goods.
72.
Graphically depict the deadweight loss caused by a monopoly. How is this similar to the
deadweight loss from
taxation?
73.
What is the deadweight loss due to profit-maximizing monopoly pricing under the following
conditions: The price
charged for goods produced is $10. The intersection of the marginal revenue
and marginal cost curves occurs where
output is 100 units and marginal revenue is $5. The
socially efficient level of production is 110 units. The demand
curve is linear and downward
sloping, and the marginal cost curve is constant.
74.
Assume that a monopolist decides to maximize revenue rather than profit. How does this
operating objective change
the size of the deadweight loss? If you are a “benevolent” manager of a
monopoly firm and are interested in reducing
the deadweight loss of monopoly, should you
maximize profits or maximize revenue? Explain your answer.
75.
One example of price discrimination occurs in the publishing industry when a publisher initially
releases an expensive
hardcover edition of a popular novel and later releases a cheaper paperback
edition. Use this example to
demonstrate the benefits and potential pitfalls of a price
discrimination pricing strategy.
76.
What are the four ways that government policymakers can respond to the problem of monopoly?
77.
Give some examples of the benefits and costs of antitrust laws.