Monopoly 3841
42. Refer to Scenario 15-6. How much additional profit can the concert promoters earn by
charging each customer their willingness to pay relative to charging a flat price of $150 per ticket?
a. $25,000
b. $50,000
c. $75,000
d. $100,000
43. Refer to Scenario 15-6. How much additional profit can the concert promoters earn by
charging each customer their willingness to pay relative to charging a flat price of $50 per ticket?
a. $25,000
b. $50,000
c. $75,000
d. $100,000
3842 Monopoly
Scenario 15-7
Black Box Cable TV is able to purchase an exclusive right to sell a premium movie channel
(PMC) in its market area. Let‘s assume that Black Box Cable pays $150,000 a year for the
exclusive marketing rights to PMC. Since Black Box has already installed cable to all of the
homes in its market area, the marginal cost of delivering PMC to subscribers is zero. The
manager of Black Box needs to know what price to charge for the PMC service to maximize her
profit. Before setting price, she hires an economist to estimate demand for the PMC service. The
economist discovers that there are two types of subscribers who value premium movie channels.
First are the 4,000 die-hard TV viewers who will pay as much as $150 a year for the new PMC
premium channel. Second, the PMC channel will appeal to 20,000 occasional TV viewers who
will pay as much as $20 a year for a subscription to PMC.
44. Refer to Scenario 15-7. If Black Box Cable TV is unable to price discriminate, what price will
it choose to maximize its profit, and what is the amount of the profit?
a. price = $20; profit = $400,000
b. price = $20; profit = $330,000
c. price = $150; profit = $450,000
d. price = $150; profit = $600,000
45. Refer to Scenario 15-7. If Black Box Cable TV is able to price discriminate, what would be the
maximum amount of profit it could generate?
a. $500,000
b. $600,000
c. $850,000
d. $925,000
Monopoly 3843
46. Refer to Scenario 15-7. What is the deadweight loss associated with the nondiscriminating
pricing policy compared to the price discriminating policy?
a. $375,000
b. $400,000
c. $475,000
d. It cannot be determined from the information provided.
Scenario 15-8
Mega Media Cable TV is able to purchase an exclusive right to sell a premium sports channel in
its market area. Let’s assume that Mega Media pays $100,000 a year for the exclusive marketing
rights to the sports channel. Since Mega Media has already installed cable to all of the homes in
its market area, the marginal cost of delivering the sports channel to subscribers is zero. The
manager of Mega Media needs to know what price to charge for the sports channel service to
maximize her profit. Before setting price, she hires an economist to estimate demand for the
sports channel. The economist discovers that there are two types of subscribers who value
premium sporting channels. First are the 3,000 die-hard sports fans who will pay as much as $150
a year for the new channel. Second, the premium sports channel will appeal to 20,000 occasional
sports viewers who will pay as much as $25 a year for a subscription to it.
47. Refer to Scenario 15-8. How much profit will Mega Media Cable TV earn if it sets the price at
$25?
a. $350,000
b. $450,000
c. $475,000
d. $575,000
3844 Monopoly
48. Refer to Scenario 15-8. How much profit will Mega Media Cable TV earn if it sets the price at
$150?
a. $350,000
b. $450,000
c. $475,000
d. $575,000
49. Refer to Scenario 15-8. If Mega Media Cable TV is unable to price discriminate, what price
will it choose to maximize its profit, and what is the amount of the profit?
a. price = $25; profit = $575,000
b. price = $25; profit = $475,000
c. price = $150; profit = $450,000
d. price = $150; profit = $350,000
Monopoly 3845
50. Refer to Scenario 15-8. If Mega Media Cable TV is able to price discriminate, what would be
the maximum amount of profit it could generate?
a. $950,000
b. $850,000
c. $400,000
d. $350,000
Scenario 15-9
Suppose executives at an art museum know that 100 adults are willing to pay $12 for admission to
the museum on a weekday. Suppose the executives also know that 200 students are willing to pay
$8 for admission on a weekday. The cost of operating the museum on a weekday is $2,000.
51. Refer to Scenario 15-9. How much profit will the museum earn if it charges all customers $8
for admission?
a. $200
b. $400
c. $800
d. $2,400
3846 Monopoly
52. Refer to Scenario 15-9. How much profit will the museum earn if it charges all customers $12
for admission?
a. –$800
b. $100
c. $800
d. $1,200
53. Refer to Scenario 15-9. How much profit will the museum earn if it engages in price
discrimination?
a. $800
b. $1,200
c. $1,600
d. $2,800
Monopoly 3847
54. Refer to Scenario 15-9. How much additional profit will the museum earn if it engages in price
discrimination compared to charging each customer $8 for admission?
a. $0
b. $200
c. $400
d. $800
Scenario 15-10
Vincent operates a scenic tour business in Boston. He has one bus which can fit 50 people per
tour and each tour lasts 2 hours. His total cost of operating one tour is fixed at $450. Vincent’s
cost is not reduced if he runs a tour with a partially full bus. While his cost is the same for all
tours, Vincent charges each passenger his/her willingness to pay: adults $18 per trip, children $10
per trip, and senior citizens $12 per trip. At those rates, on a typical day Vincent’s demand is:
Passenger Type
Willingness to Pay
Demand per day
Adults
$18
70
Children
$10
25
Senior Citizens
$12
55
Assume that Vincent’s customers are always available for the tour; therefore, he can fill his bus
for each tour as long as there is sufficient total demand for the day.
55. Refer to Scenario 15–10. What is Vincent’s total revenue on a typical day?
a. $1,500
b. $1,800
c. $2,170
d. $2,700
3848 Monopoly
56. Refer to Scenario 15–10. What is Vincent’s profit on a typical day?
a. $660
b. $820
c. $1,350
d. $2,170
57. Refer to Scenario 15-10. Vincent is considering changing his pricing strategy. Which of the
following options results in the highest profit per day?
a. Charge a single price of $10 to all passengers.
b. Charge a single price of $12 to all passengers.
c. Charge a single price of $18 to all passengers.
d. Continue charging each buyer his/her willingness to pay.
Monopoly 3849
Figure 15-17
58. Refer to Figure 15–17. Which of the following areas represents the profit earned by this profit–
maximizing monopolist?
a. BCFE
b. ABE
c. EFG
d. CFIH
3850 Monopoly
59. Refer to Figure 15–17. Which of the following areas represents the deadweight loss from this
profit–maximizing monopolist?
a. ABE
b. BCFE
c. EFG
d. ACG
60. Refer to Figure 15-17. Which of the following areas represents the consumer surplus from this
profit–maximizing monopolist?
a. ABE
b. BCFE
c. EFG
d. ACG
Monopoly 3851
61. Refer to Figure 15–17. If this firm were able to perfectly price discriminate, which of the
following areas would represent the profit to this perfectly discriminating monopolist?
a. ABE
b. BCFE
c. EFG
d. ACG
62. Refer to Figure 15–17. Which of the following statements best describes the changes that
would occur if this firm were to switch from operating as a single price profit–maximizing
monopolist to perfect price discrimination?
a. The quantity would increase from I to J, the profit would increase from BCFE to ACG, and the
deadweight loss would decrease from EFG to zero.
b. The quantity would remain constant, the profit would increase from BCFE to ABCFE and the
deadweight loss would decrease from EFG to zero.
c. The quantity would decrease from J to I, the profit would decrease from ACG to BCFE, and
the deadweight loss would increase from EFG to ACG.
d. The quantity would increase from I to J, the profit would decrease from BCFE to EFG, and the
deadweight loss remain constant.
3852 Monopoly
Figure 15–18
63. Refer to Figure 15–18. If the monopoly firm is not allowed to price discriminate, then consumer
surplus amounts to
a. $1,000.
b. $2,000.
c. $3,000.
d. $4,000.
64. Refer to Figure 15-18. If the monopoly firm perfectly price discriminates, then consumer
surplus amounts to
a. $0.
b. $1,000.
c. $2,000.
d. $4,000.
Monopoly 3853
65. Refer to Figure 15-18. If the monopoly firm is not allowed to price discriminate, then the
deadweight loss amounts to
a. $0.
b. $1,000.
c. $2,000.
d. $4,000.
66. Refer to Figure 15-18. If the monopoly firm perfectly price discriminates, then the deadweight
loss amounts to
a. $0.
b. $1,000.
c. $2,000.
d. $4,000.
3854 Monopoly
67. Refer to Figure 15-18. If there are no fixed costs of production, monopoly profit without price
discrimination equals
a. $0.
b. $1,000.
c. $2,000.
d. $4,000.
68. Refer to Figure 15–18. If there are no fixed costs of production, monopoly profit with perfect
price discrimination equals
a. $0.
b. $1,000.
c. $2,000.
d. $4,000.
Monopoly 3855
Figure 15–19
69. Refer to Figure 15–19. If the monopoly firm is not allowed to price discriminate, then consumer
surplus amounts to
a. $0.
b. $1,562.50.
c. $3,125.
d. $6,250.
70. Refer to Figure 15-19. If the monopoly firm perfectly price discriminates, then consumer
surplus amounts to
a. $0.
b. $1,562.50.
c. $3,125.
d. $6,250.
3856 Monopoly
71. Refer to Figure 15-19. If the monopoly firm is not allowed to price discriminate, then the
deadweight loss amounts to
a. $0.
b. $1,562.50.
c. $3,125.
d. $6,250.
72. Refer to Figure 15-19. If the monopoly firm perfectly price discriminates, then the deadweight
loss amounts to
a. $0.
b. $1,562.50.
c. $3,125.
d. $6,250.
Monopoly 3857
73. Refer to Figure 15-19. If there are no fixed costs of production, monopoly profit without price
discrimination equals
a. $0.
b. $1,562.50.
c. $3,125.
d. $6,250.
74. Refer to Figure 15–19. If there are no fixed costs of production, monopoly profit with perfect
price discrimination equals
a. $1.
b. $1,562.5.
c. $3,125.
d. $6,250.
3858 Monopoly
Figure 15–20
75. Refer to Figure 15-20. The consumer surplus at the monopolist’s profit-maximizing price is
a. $450.
b. $900.
c. $1,350.
d. $2,025.
76. Refer to Figure 15-20. The deadweight loss caused by a profit-maximizing monopoly amounts
to
a. $225.
b. $450.
c. $900.
d. $1,350.
Monopoly 3859
77. Which of the following can defeat the profit-maximizing strategy of price discrimination?
a. consumer surplus
b. deadweight loss
c. market power
d. arbitrage
78. Price discrimination is a rational strategy for a profit-maximizing monopolist when
a. the monopolist finds itself able to produce only limited quantities of output.
b. consumers are unable to be segmented into identifiable markets.
c. the monopolist wishes to increase the deadweight loss that results from profit-maximizing
behavior.
d. there is no opportunity for arbitrage across market segments.
3860 Monopoly
79. A market force that can prevent firms from price discriminating is
a. fluctuating resource prices.
b. arbitrage.
c. high fixed costs.
d. marginal–cost pricing.
80. The process of buying a good in one market at a low price and selling the good in another market
for a higher price in order to profit from the price difference is known as
a. sabotage.
b. conspiracy.
c. arbitrage.
d. collusion.