27) In the above figure, for a single-price monopoly the deadweight loss is equal to the area
A) abP1.
B) acP2.
C) bce.
D) bed.
E) P1beP3.
28) Comparing a perfectly competitive market to a single-price monopoly with the same costs,
we see that
A) both markets are equally efficient in their use of resources.
B) the monopoly market always is more efficient in the use of resources.
C) the perfectly competitive market achieves efficiency in resource use while the monopoly
market does not.
D) the monopoly market achieves efficiency in resource use while perfectly competitive market
does not.
E) None of the above answers is correct because comparing a perfectly competitive market to a
monopoly is impossible.
29) A monopoly creates a deadweight loss because the monopoly
A) sets a price that is too low.
B) earns a normal profit.
C) does not maximize profit.
D) produces less than the efficient quantity.
E) produces more than the efficient quantity.
30) Monopolies are inefficient because, at the profit-maximizing output level,
A) MC = MR.
B) MC does not equal MR.
C) MB = MC.
D) MB does not equal MC.
E) P = ATC.
31) Compared to a similar perfectly competitive industry, a single-price monopoly
A) creates a deadweight loss and decreases economic profit.
B) produces more output.
C) creates a deadweight loss and decreases consumer surplus.
D) is more efficient because there is no wasteful competition.
E) sets a lower price because there is less competition.
32) In a monopoly, producers ________ and consumers ________.
A) gain; lose
B) lose; lose
C) lose; gain
D) gain; gain
E) gain; do not gain or lose
33) If a perfectly competitive industry becomes a monopoly and the costs do not change, which
of the following allocation of costs and benefits applies?
A) The producer benefits, but consumers and society are harmed.
B) The producer and society are harmed, but consumers benefit.
C) The producer and society benefit, but consumers are harmed.
D) The producer is harmed, but consumers and society benefit.
E) The producer, consumers, and society all benefit.
34) The Seattle Mariners baseball team has a monopoly on major league baseball in the
Northwest. If the Mariners could be purchased by anyone with enough money, we could argue
that this purchase is fair according to the
A) fair rules test.
B) fair results test.
C) fair price test.
D) fair output test.
E) allocative fairness test.
35) Rent seeking is the act of obtaining special treatment by ________ to create ________.
A) a monopoly; consumer surplus
B) the government; economic profit
C) consumers; a monopoly
D) the government; consumer surplus
E) competitive producers; a monopoly
36) Rent seeking is defined as
A) charging higher prices for an apartment.
B) the act of obtaining special treatment by the government to create an economic profit.
C) charging a price below marginal cost.
D) selling a greater quantity than is profitable.
E) charging different prices for different units of the good or service.
37) Rent seeking
A) is the act of obtaining special treatment by the government to create economic profit.
B) is the attempt to get rent from tardy renters.
C) occurs when landlords advertise for apartments and other property for rent.
D) is an attempt to sell a property and capture economic profit.
E) occurs when a firm charges different prices for different units of its good or service.
38) If a producer wants a monopoly with a legal barrier to entry, how can this be done?
i. The producer can spend funds lobbying to attain passage of the legal barrier to entry.
ii. The producer can purchase an existing monopoly.
iii. The producer can make rent seeking expenditures.
A) i and ii
B) i and iii
C) ii and iii
D) i, ii, and iii
E) None of the above are ways to acquire a monopoly with a legal barrier to entry.
39) Competition among rent seekers results in
A) higher rents.
B) firms earning normal profits.
C) firms setting lower prices.
D) lower costs.
E) all competing firms earning an economic profit.
40) When a rent-seeking equilibrium is reached, the
A) economic profit is maximized.
B) economic profit is eliminated by legislation.
C) economic profit is eliminated.
D) consumer surplus is greater than without rent seeking.
E) consumer surplus is eliminated.
41) If a perfectly competitive industry is taken over by a single firm that operates as a single-
price monopoly, the price will ________ and the quantity will ________.
A) fall, decrease
B) fall, increase
C) rise, decrease
D) rise, increase
E) not change; decrease
42) Comparing single-price monopoly to perfect competition, monopoly
A) increases the amount of consumer surplus.
B) has the same amount of consumer surplus.
C) has no consumer surplus.
D) decreases the amount of consumer surplus.
E) decreases the amount of economic profit.
43) Is a single-price monopoly efficient?
A) Yes, because it creates a deadweight loss.
B) No, because it creates a deadweight loss.
C) Yes, because consumers gain and producers lose some of their surpluses.
D) Yes, because consumers lose and producers gain some of their surpluses.
E) Yes, because it produces the quantity at which MR=MC.
44) Monopolies ________ fair and ________ efficient.
A) are always; are not
B) might be; are always
C) might be; might be
D) are always; are always
E) are never; are always
45) In equilibrium, rent seeking eliminates the
A) deadweight loss.
B) economic profit.
C) consumer surplus.
D) demand for the product.
E) opportunity to price discriminate.
15.4 Price Discrimination
1) To be able to price discriminate, a firm must
A) lower prices for all customers.
B) raise prices for all customers.
C) be able to identify and separate different types of buyers.
D) sell a product that can be resold.
E) Both answers B and C are correct.
2) Which of the following must exist for a firm to engage in price discrimination?
A) The firm must be able to identify and separate its buyers into different classes, and the low-
price buyers cannot resell the product to the high-price buyers.
B) The firm must face an inelastic demand.
C) The firm must be able to realize economies of scale.
D) The firm must have no more than one class of buyer.
E) The firm must be a natural monopoly.
3) A price-discriminating monopoly charges
A) the same price to every buyer for the same product.
B) a different price to different types of buyers for the same product, even though there are no
differences in costs.
C) a different price to different buyers, because the costs are different.
D) different prices to buyers for different products.
E) each customer a price that equals the marginal cost of serving that customer.
4) Price discrimination is possible, in part, because
A) costs of production vary as output increases.
B) monopolies are regulated.
C) monopolies don’t profit maximize.
D) the willingness to pay can vary among groups of buyers.
E) monopolies face horizontal demand curves.
5) Arnie’s Airlines is a monopoly airline that is able to price discriminate. If Arnie’s decides to
price discriminate, then
A) Arnie’s profit decreases.
B) consumer surplus decreases.
C) Arnie’s revenues decrease.
D) Arnie’s sells fewer tickets.
E) Arnie’s will see all of his tickets at a single price.
6) With price discrimination, a monopoly
A) converts consumer surplus into economic profit.
B) converts producer surplus into economic profit.
C) can charge a single price to all customers.
D) produces less output than if it does not price discriminate.
E) converts consumer surplus into deadweight loss.
7) One way a monopoly can convert additional consumer surplus into economic profit is to
A) lower prices.
B) raise prices.
C) price discriminate.
D) become more competitive.
E) produce where price equals average total cost.
8) An airline company
A) cannot price discriminate because it is against the law.
B) price discriminates by charging higher prices to business travelers.
C) price discriminates by charging lower prices to business travelers.
D) price discriminates even though its profits are lower because competition forces it to do so.
E) has fewer customers because it price discriminates than it would have if it did not price
discriminate.
9) A price-discriminating monopoly
A) sells a larger quantity than it would if it were a single-price monopoly.
B) is illegal.
C) cannot offer discounts.
D) cannot control the price of its product.
E) makes a smaller economic profit than it would if it were a single-price monopoly.
10) Compared to setting a single price, if a firm can price discriminate it
A) earns a higher economic profit.
B) earns a lower economic profit.
C) earns zero economic profit.
D) has no change in its economic profit from when it set a single price.
E) might increase, decrease, or not change its economic profit depending on whether as a single-
price monopoly its marginal revenue curve was above, below, or the same as its demand curve.
11) The key idea behind price discrimination is to convert consumer surplus into
A) a barrier to entry.
B) economic profit.
C) deadweight loss.
D) monopoly power.
E) total cost.
12) If a firm successfully price discriminates, it increases
i. consumer surplus.
ii. deadweight loss.
iii. economic profit.
A) i only
B) ii only
C) iii only
D) i and iii
E) i and ii
13) Arnie’s Airlines is a monopoly airline that is able to price discriminate. If Arnie’s decides to
price discriminate, then
A) Arnie’s profit increases.
B) consumer surplus increases.
C) Arnie’s revenues decrease.
D) Arnie’s sells fewer tickets.
E) Arnie can no longer set a price that depends upon the buyer’s willingness to pay.
14) Arnie’s Airlines decides to offer different fares to different customers for the same trip.
Arnie’s price discriminates because Arnie
A) wants to convert consumer surplus to deadweight loss.
B) wants to help some buyers with lower fares.
C) has different costs for the same flight.
D) wants to convert consumer surplus to economic profit.
E) wants to convert producer surplus to consumer surplus.
15) Which of the following is true regarding price discrimination?
i. It converts consumer surplus to economic profit.
ii. A price discriminator must be a monopoly.
iii. To be able to price discriminate, the firm must be able to identify different types of buyers.
A) i and ii
B) i and iii
C) ii and iii
D) ii only
E) i, ii, and iii
16) Compared to the situation in which it sets a single price, a monopoly that price discriminates
________ its economic profit and ________ its output.
A) increases; increases
B) increases; decreases
C) decreases; increases
D) decreases; decreases
E) increases; does not change
17) A “buy one, get one for half price” promotion is an example of
A) price discriminating among units of a good.
B) price discriminating among groups of buyers.
C) a legal monopoly.
D) a natural monopoly.
E) marketing by a perfectly competitive firm designed to increase the firm’s sales.
18) Why do publishers print the first edition of a book by a popular author in hard cover and not
in paperback?
A) Hard cover books are long lasting and paperbacks can rip easily.
B) Readers who want to read the book as soon as it comes out will be willing to pay a higher
price compared to those who can wait for the paperback edition.
C) A hardcover is the publisher’s way of rewarding the avid readers.
D) Publishers are not sure of the demand.
E) Publishers cannot price discriminate.
19) Which of the following statements about price discrimination is false?
A) Price discrimination is a method for a seller to capture some consumer surplus.
B) Compared to a single-price monopoly, the number of units sold increases when a monopoly
price discriminates.
C) Charging less for a second pizza that is identical to the first is an example of price
discrimination.
D) Price discrimination increases a monopoly’s profit.
E) All forms of price discrimination are illegal.
20) If a firm is able to convert every dollar of consumer surplus to economic profit, the firm has
achieved
A) discrimination among units of a good.
B) discrimination between groups of buyers.
C) perfect price discrimination.
D) perfect cost minimization.
E) the normal amount of economic profit.
21) With perfect price discrimination, a monopoly can extract the ________ price each customer
is willing to pay and thereby obtain the entire ________ surplus.
A) maximum; consumer
B) minimum; producer
C) maximum; producer
D) minimum; consumer
E) None of the above answers are correct.
22) When a firm is able to engage in perfect price discrimination, its marginal revenue curve
A) lies below its demand curve.
B) is the same as its demand curve.
C) lies above its demand curve.
D) is the same as its supply curve.
E) is undefined because it does not exist.
23) If a monopoly can perfectly price discriminate, then its marginal revenue curve will be
A) the same as its demand curve.
B) the same as its supply curve.
C) the same as its marginal cost curve.
D) a vertical line at the profit-maximizing quantity of output.
E) undefined because it does not exist.
24) Under which of the following does a monopoly’s demand curve become its marginal revenue
curve?
A) all types of monopoly
B) only single-price monopoly
C) only perfect price discrimination
D) only price discrimination on the basis of the number of units purchased
E) any monopoly that price discriminates
25) With perfect price discrimination ________, and production is expanded until marginal
revenue equals ________.
A) the firm’s demand curve becomes its marginal revenue curve; marginal cost
B) the firm’s demand curve becomes its marginal revenue curve; average total cost
C) the firm’s marginal revenue curve bisects the angle with which demand intersects the price-
axis; marginal cost
D) the firm’s marginal revenue curve bisects the angle with which demand intersects the price-
axis; average total cost
E) economic profit is maximized when the lowest price equals marginal cost; average total cost.
26) Compared to a single-price monopoly, when a monopoly can perfectly price discriminate,
the deadweight loss
A) increases.
B) decreases.
C) remains the same.
D) becomes infinite.
E) probably changes, but more information is needed to determine if it increases, decreases, or
remains constant.
27) With perfect price discrimination, the level of output
A) exceeds the efficient quantity.
B) is the same as the amount produced by any monopoly that price discriminates.
C) is the same as the amount produced in a perfectly competitive market.
D) equals the amount produced by a single-price monopoly.
E) is unknown.
28) Under which of the following is consumer surplus zero?
A) all types of monopoly
B) only single-price monopoly
C) only perfectly price-discriminating monopoly
D) only price discrimination on the basis of the number of units purchased
E) perfect competition
29) The deadweight loss with perfect price discrimination is
A) equal to the deadweight loss of a single-price monopoly.
B) sometimes less than and sometimes more than the deadweight loss of a single-price
monopoly.
C) more than the deadweight loss of a single-price monopoly.
D) zero.
E) larger than the deadweight loss with perfect competition.
30) Which of the following industries is most likely closest to achieving perfect price
discrimination?
A) the airline industry
B) the wheat industry
C) the textbook industry
D) the toilet paper industry
E) the soft drink industry
31) Which of the following must a firm be able to do to successfully price discriminate?
i. divide buyers into different groups according to their willingness to pay
ii. prevent resale of the good or service
iii. identify into which group (high willingness to pay or low willingness to pay) a buyer falls
A) ii only
B) i and ii
C) i and iii
D) iii only
E) i, ii, and iii
32) Which of the following is (are) price discrimination?
i. charging different prices based on differences in production cost
ii. charging business flyers a higher airfare than tourists
iii. charging more for the first pizza than the second
A) i only
B) ii only
C) ii and iii
D) i and iii
E) i, ii, and iii
33) When a monopoly price discriminates, it
A) increases the amount of consumer surplus.
B) decreases its economic profit.
C) converts consumer surplus into economic profit.
D) converts economic profit into consumer surplus.
E) has no effect on the deadweight loss in the market.
34) If a monopoly is able to perfectly price discriminate, then consumer surplus is
A) equal to zero.
B) maximized.
C) unchanged from what it is with a single-price monopoly.
D) unchanged from what it is in a perfectly competitive industry.
E) not zero but is less than with a single-price monopoly.
35) With perfect price discrimination, the quantity of output produced by a monopoly is
________ the quantity produced by a perfectly competitive industry.
A) greater than but not equal to
B) less than
C) equal to but not greater than
D) not comparable to
E) either greater than or equal to
15.5 Monopoly Regulation
1) ________ natural monopolies is a commonly used, potential solution to the problems
presented by natural monopolies.
A) Breaking up firms that are
B) Regulating
C) Outlawing price discrimination by
D) Refusing to grant patents to
E) Giving incentives to firms to become
2) The social interest theory of regulation is defined as the
A) use of regulations to maximize firms’ profits.
B) use of regulations to assure an efficient use of resources.
C) removal of regulations on business activities.
D) implementation and removal of regulations on the cable TV industry.
E) use of rate of return regulation.
3) The social interest theory of regulation is that
A) regulators help producers maximize economic profit.
B) regulation seeks to increase the government’s revenue.
C) regulation causes producers to produce at a point where they are earning normal profits.
D) regulation seeks an efficient use of resources.
E) regulation focuses on the consumers’ interests and ignores producers’ interests.
4) The social interest theory of regulation assumes that
A) regulation is against the public interest.
B) the public is indifferent to regulation.
C) regulation seeks an efficient use of resources.
D) the public cares deeply about regulation.
E) regulators are captured by the firms being regulated.
5) The social interest theory of regulation asserts that regulation
A) seeks an efficient use of resources.
B) is aimed at keeping prices as low as possible.
C) helps firms maximize economic profit.
D) of a natural monopoly must be done using rate of return regulation.
E) does not work for society as well as would allowing the firms freedom from regulation.
6) Who receives benefits if regulation works according to social interest theory?
A) the entire economy
B) cohesive interest groups
C) everyone not in the cohesive interest group
D) the regulators
E) It is impossible to determine who benefits.