Monopoly 3861
81.
If a monopolist can practice perfect price discrimination, the monopolist will
a.
eliminate consumer surplus.
b.
eliminate deadweight loss.
c.
maximize profits.
d.
All of the above are correct.
82.
Perfect price discrimination
a.
eliminates deadweight loss.
b.
reduces profits to the monopolist.
c.
decreases the total quantity sold by the monopolist.
d.
requires arbitrage in order for the monopolist to maximize profits.
83.
Perfect price discrimination
a.
increases profits to the firm.
b.
increases total surplus.
c.
decreases consumer surplus.
d.
All of the above are correct.
84.
A perfectly price-discriminating monopolist is able to
a.
maximize profit and produce a socially-optimal level of output.
b.
maximize profit, but not produce a socially-optimal level of output.
c.
produce a socially-optimal level of output, but not maximize profit.
d.
exercise illegal preferences regarding the race and/or gender of its employees.
85.
If a monopolist is able to perfectly price discriminate,
a.
consumer surplus is always increased.
b.
total surplus is always decreased.
c.
consumer surplus and deadweight losses are transformed into monopoly profits.
d.
the price effect dominates the output effect on monopoly revenue.
86.
In theory, perfect price discrimination
a.
decreases the monopolist’s profits.
b.
decreases consumer surplus.
c.
increases deadweight loss.
d.
reduces the number of consumers who purchase the monopoly’s product.
87.
Perfect price discrimination describes a situation in which the monopolist
a.
knows the exact willingness to pay of each of its customers.
b.
charges exactly two different prices to exactly two different groups of customers.
c.
maximizes consumer surplus.
d.
experiences a zero economic profit.
88.
In reality, perfect price discrimination is
a.
used by about 75 percent of all monopolies.
b.
used by about 50 percent of all monopolies.
c.
seldom used by monopolies because it leads to lower profits.
d.
rarely possible.
89.
How does a competitive market compare to a monopoly that engages in perfect price
discrimination?
a.
In both cases, total social welfare is the same.
b.
Total social welfare is higher in the competitive market than with the perfectly price
discriminating monopoly.
c.
In both cases, some potentially mutually beneficial trades do not occur.
d.
Consumer surplus is the same in both cases.
90.
A monopolist that practices perfect price discrimination
a.
creates no deadweight loss.
b.
charges one group of buyers a higher price than another group, such as offering a student
discount.
c.
charges a higher price but produces the same monopoly level of output as when a single price
is charged.
d.
charges some customers a price below marginal cost because costs are covered by the high-
priced buyers.
91.
A monopolist faces the following demand curve:
Price
Quantity
$8
300
$7
400
$6
500
$5
600
$4
700
$3
800
$2
900
$1
1,000
The monopolist has fixed costs of $1,000 and has a constant marginal cost of $2 per unit. If the
monopolist were
able to perfectly price discriminate, how many units would it sell?
a.
400
b.
500
c.
900
d. 4,200
92.
With perfect price discrimination the monopoly
a.
eliminates all price discrimination by charging each customer the same price.
b.
charges each customer an amount equal to the monopolist‘s marginal cost of production.
c.
eliminates deadweight loss.
d.
eliminates profits and increases consumer surplus.
93.
Which of the following is not one of the ways that antitrust laws promote competition?
a.
Antitrust laws allow the government to prevent mergers.
b.
Antitrust laws allow the government to break up companies into smaller ones.
c.
Antitrust laws prevent companies from coordinating their activities in ways that make markets
less
competitive.
d.
Antitrust laws allow the government to shut down any firm the government believes has
monopoly power.
Table 15–21
Tommy’s Tie Company, a monopolist, has the following cost and revenue information. Assume
that Tommy’s is
able to engage in perfect price discrimination.
COSTS
REVENUES
Quantity
Produced
Total Cost
Marginal
Cost
Price
Total
Revenue
Marginal
Revenue
0
$100
—
$170
—
1
$140
$160
2
$184
$150
3
$230
$140
4
$280
$130
5
$335
$120
6
$395
$110
7
$475
$100
8
$575
$95
Monopoly 3867
94.
Refer to Table 15-21. If the monopolist can engage in perfect price discrimination, what is the
marginal revenue
from selling the 5th tie?
a.
$80
b.
$100
c.
$110
d.
$120
95.
Refer to Table 15-21. If the monopolist can engage in perfect price discrimination, what is the
marginal revenue
from selling the 8th tie?
a.
$45
b.
$60
c.
$80
d.
$95
96.
Refer to Table 15-21. If the monopolist can engage in perfect price discrimination, what is the
total revenue when
3 ties are sold?
a.
$140
b.
$420
c.
$450
d.
$620
97.
Refer to Table 15-21. If the monopolist can engage in perfect price discrimination, what is the
total revenue when
7 ties are sold?
a.
$650
b.
$700
c.
$910
d.
$1080
98.
Refer to Table 15-21. If the monopolist can engage in perfect price discrimination, what is the
average revenue
when 7 ties are sold?
a.
$90
b.
$100
c.
$110
d.
$130
99.
Refer to Table 15–21. If the monopolist can engage in perfect price discrimination, what is the
quantity that
maximizes economic profit?
a.
5 ties
b.
6 ties
c.
7 ties
d.
8 ties
100.
Refer to Table 15-21. If the monopolist can engage in perfect price discrimination, what is
total profit at the
profit-maximizing quantity?
a.
$325
b.
$435
c.
$565
d.
$1000
101.
Refer to Table 15-21. What are Tommy’s Ties Company’s fixed costs?
a.
$100
b.
$150
c.
$354
d.
$654
Monopoly 3871
Multiple Choice – Section 05: Public Policy toward Monopolies
1.
Which of the following is the preferred strategy for the government to follow to remedy the
inefficient allocation of
resources associated with monopolies?
a.
preventing mergers through antitrust laws
b.
regulating the prices that monopolies can charge
c.
doing nothing
d.
None of the above strategies is preferred. Each is a viable strategy.
2.
Which of the following statements is not correct?
a.
The government may use antitrust laws to break up an existing company to improve competition.
b.
The government may break up a natural monopoly to lower the price charged to customers.
c.
Private ownership is typically preferred to public ownership.
d.
Sometimes the best strategy is for the government to do nothing about monopoly inefficiency
because the “fix” may be worse than the problem.
3.
Which of the following statements is not correct?
a.
The government may use antitrust laws to prevent a merger if the government believes the
merger will reduce
competition and increase prices.
b.
By regulating a natural monopoly where price equals average total cost, the monopoly earns zero
profits.
c.
An advantage of private ownership over public ownership is that private business owners tend to
fire
inefficient managers.
d.
The government should always intervene to improve monopoly inefficiency.
4.
Which of the following governmental actions would eliminate some or all of the inefficiency that
results from
monopoly pricing? The government could
a.
regulate the monopoly.
b.
prohibited the monopoly from price discriminating.
c.
force the monopoly to operate at a point where its marginal revenue is equal to its marginal cost.
d.
None of the above would eliminate any inefficiency associated with a monopoly.
5.
Antitrust laws have economic benefits that outweigh the costs if they
a.
prevent mergers that would decrease competition and lower the costs of production.
b.
prevent mergers that would decrease competition and raise the costs of production.
c.
allow mergers that would decrease competition and raise the costs of production.
d.
None of the above is correct because antitrust laws never have economic benefits that outweigh
the costs.
6.
Which of the following statements is not correct?
a.
Two examples of early antitrust laws are the Sherman and Clayton Antitrust Acts.
b.
Antitrust laws automatically prevent mergers between companies that produce similar products.
c.
Antitrust laws give the government power to increase competition.
d.
Antitrust laws can reduce social welfare if they prevent mergers that would lower costs through
more
efficient joint production.
7.
Which of the following statements is correct?
a.
Two examples of early antitrust laws are the Clinton and Stigler Antitrust Acts.
b.
Antitrust laws automatically prevent mergers between companies that produce similar products.
c.
Antitrust laws reduce the government’s power to regulate private companies.
d.
Antitrust laws can reduce social welfare if they prevent mergers that would lower costs through
more
efficient joint production.
8.
The first major piece of antitrust legislation was the
a.
Clayton Act.
b.
Obama Care Act.
c.
Sherman Act.
d.
Clinton Act.
9.
The legislation passed by Congress in 1890 to reduce the market power of large and powerful
“trusts” was the
a.
Morgan Act.
b.
Sherman Act.
c.
Clayton Act.
d.
14th Amendment.
10.
The legislation passed by Congress in 1914 to strengthen the government’s powers and authorize
private lawsuits was the
a.
Morgan Act.
b.
Sherman Act.
c.
Clayton Act.
d.
14th Amendment.
11.
The collection of statutes aimed at curbing monopoly power is called
a.
the 14th amendment.
b.
the Clayton Act.
c.
the Sherman Act.
d.
antitrust law.
12.
In order for antitrust laws to raise social welfare, the government must
a.
disallow synergy benefits from accruing to monopolists.
b.
disallow any mergers from taking place.
c.
be able to determine which mergers are desirable and which are not.
d.
always attempt to keep markets in their most competitive form.
13.
Reduced competition through merging of companies will raise social welfare
a.
if the social cost from the synergies exceeds the benefit of increased market power.
b.
if the benefit from the synergies exceeds the social cost of increased market power.
c.
always.
d.
never.
14.
One method used to control the ability of firms to capture monopoly profit in the United States is
through
a.
government purchase of products produced by monopolists.
b.
government distribution of a monopolist’s excess production.
c.
enforcement of antitrust laws.
d.
regulation of firms in highly competitive markets.
15.
Antitrust laws may
a.
enhance the ability of firms to capture profits from a concentration of market power.
b.
enhance the ability of firms to reduce economic losses.
c.
restrict the ability of firms to operate at the socially efficient level of production.
d.
restrict the ability of firms to merge.
16.
Antitrust laws allow the government to
a.
prevent mergers.
b.
break up companies.
c.
promote competition.
d.
All of the above are correct.
17.
Antitrust laws allow the government to
a.
collect revenues through the antitrust tax.
b.
break up companies.
c.
purchase privately-held companies through eminent domain.
d.
All of the above are correct.
18.
Splitting up a monopoly is often justified on the grounds that
a.
consumers prefer dealing with small firms.
b.
small firms have lower costs.
c.
competition is inherently efficient.
d.
small firms produce higher quality products.
19.
Antitrust laws
a.
prevent firms from maximizing profits.
b.
allow the government to prevent mergers, even ones that would benefit consumers.
c.
require the government to measure both the benefits and costs of a potential merger.
d.
All of the above are correct.
20.
Which of the following statements is correct?
a.
Public ownership is preferred to regulation in order to minimize the deadweight losses
associated with natural
monopolies.
b.
Antitrust laws are always the best way to limit monopoly power.
c.
It is possible that the best approach to monopolies is for the government to do nothing.
d.
Marginal-cost pricing requires a natural monopoly to earn zero economic profits.
21.
Which of the following is not correct?
a.
Antitrust laws may prevent mergers that would actually raise social welfare.
b.
Public ownership is the most common public policy toward monopolies in the United States.
c.
Regulation is a common strategy for a natural monopoly.
d.
Sometimes the best public policy toward a monopoly may be to do nothing.
22.
Which of the following statements is not correct?
a.
Part of the deadweight loss associated with monopoly is measured by the monopolist’s
economic profit.
b.
Marginal cost is always less than average total cost in a natural monopoly.
c.
Discount coupons available free to the public are a type of price discrimination.
d.
Anti-trust laws make it harder for firms to create synergies.