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Subjective Short Answer
1. What are the three main sources of barriers to entry for monopolies?
3. Comparing firms in perfectly competitive markets to monopoly firms, which charges higher prices?
4. Comparing firms in perfectly competitive markets to monopoly firms, which produces more output?
5. Comparing firms in perfectly competitive markets to monopoly firms, which charges a price equal to marginal cost?
6. Comparing firms in perfectly competitive markets to monopoly firms, which can earn economic profits in the long run?
7. Comparing firms in perfectly competitive markets to monopoly firms, which results in a deadweight loss?
Figure 15-1
8. Refer to Figure 15-1. How much consumer surplus results if this single-price monopolist profit-maximizes?
9. Refer to Figure 15-1. How much profit will this monopolist earn if it charges each consumer the same price?
10. Refer to Figure 15-1. How much deadweight loss results if this single-price monopolist profit-maximizes?
11. Refer to Figure 15-1. If the monopolist uses perfect price discrimination, how much output does the firm produce?
12. Refer to Figure 15-1. If the monopolist uses perfect price discrimination, what price will it charge?
13. Refer to Figure 15-1. If the monopolist uses perfect price discrimination, how much profit does the firm earn?
14. Refer to Figure 15-1. If the monopolist uses perfect price discrimination, how much deadweight loss results?
15. Refer to Figure 15-1. Which is more efficient, single price profit maximization or perfect price discrimination?
Figure 15-2
16. Refer to Figure 15-2. What type of monopoly is shown in the figure?
17. Refer to Figure 15-2. If the firm profit-maximizes, what amount of output will it produce?
18. Refer to Figure 15-2. If the firm profit-maximizes, what price will it charge?
19. Refer to Figure 15-2. If the firm profit-maximizes, how much profit will it earn?
20. Refer to Figure 15-2. If a regulator requires the firm to charge a marginal cost price, what price will the firm charge?
21. Refer to Figure 15-2. If a regulator requires the firm to charge a marginal cost price, what quantity will the firm
produce?
22. Refer to Figure 15-2. If a regulator requires the firm to charge a marginal cost price, what is the amount of profit or
loss earned by the firm?
23. Refer to Figure 15-2. If a regulator requires the firm to charge an average cost price, what is the amount of profit or
loss earned by the firm?
24. Refer to Figure 15-2. If a regulator requires the firm to charge an average cost price, what price will the firm charge?
25. Refer to Figure 15-2. If a regulator requires the firm to charge an average cost price, what quantity will the firm
produce?
26. Microsoft’s government-granted exclusive right to make and sell the Windows operating system is called a
27. The fundamental cause of monopoly is
28. In both perfectly competitive and monopoly markets, the price per unit of a good is equal to the
Table 15-1
Quantity
Price
10
$46
20
$42
30
$38
40
$34
50
$30
60
$26
70
$22
80
$18
90
$14
100
$10
29. Refer to Table 15-1. The average revenue of the 50th unit of output is
30. Refer to Table 15-1. The marginal revenue, when the quantity changes from 30 to 40 units, is
31. Refer to Table 15-1. The marginal revenue becomes negative with the production of which unit of output?
32. State one benefit of government-granted monopolies like patents and copyrights.
33. When a single firm can supply a good or service to an entire market at a lower cost than could two or more firms, the
industry is known as a
34. The distribution of water to residents of a town and an infrequently used bridge are examples of
Figure 15-3
35. Refer to Figure 15-3. Which letter represents the profit-maximizing quantity chosen by the single price monopolist?
36. Refer to Figure 15-3. Which letter represents the profit-maximizing price chosen by the single price monopolist?
37. Refer to Figure 15-3. Use the letters in the figure to identify the profit area for the single price monopolist.
38. Refer to Figure 15-3. Use the letters in the figure to identify the area of deadweight loss for the single price
monopolist.
39. Refer to Figure 15-3. If this firm were able to perfectly price discriminate, which letter represents the amount of
output it would produce?
40. Refer to Figure 15-3. Use the letters in the figure to identify the profit area if this firm were able to perfectly price
discriminate.
Scenario 15-1
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.
41. Refer to Scenario 15-1. Vincent uses a pricing practice called
42. Refer to Scenario 15-1. What is Vincent’s cost of serving all passengers demanding a tour on a typical day?
43. Refer to Scenario 15-1. What is Vincent’s profit on a typical day?
44. Refer to Scenario 15-1. One of Vincent’s friends tells him he would be more profitable if he charged a single price of
$18. Assuming no changes in consumer demand, what would Vincent’s profit be if he charged every customer $18?
45. Refer to Scenario 15-1. One of Vincent’s friends tells him he would be more profitable if he charged a single price of
$12. Assuming no changes in consumer demand, what would Vincent’s profit be if he charged every customer $12?
Figure 15-4
46. Refer to Figure 15-4. If this firm profit maximizes, which letter represents the price it will charge?
47. Refer to Figure 15-4. If this firm profit maximizes, which letter represents the quantity it will produce?
48. Refer to Figure 15-4. If a regulator requires this firm to charge a socially optimal price, which letter represents the
amount of output it will produce?
49. Refer to Figure 15-4. If a regulator requires this firm to charge a fair return price, which letter represents the amount
of output it will produce?
50. Refer to Figure 15-4. If a regulator requires this firm to charge a socially optimal price, how much deadweight loss
results?
51. Describe how government is involved in creating a monopoly. Why might the government create one? Give an
example.
52. What is the defining characteristic of a natural monopoly? Give an example of a natural monopoly.
53. 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.
54. 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.
55. Explain how a profit-maximizing monopolist chooses its level of output and the price of its goods.
56. Graphically depict the deadweight loss caused by a monopoly. How is this similar to the deadweight loss from
taxation?
57. 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.
58. 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.
59. 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.
60. What are the four ways that government policymakers can respond to the problem of monopoly?
61. Give some examples of the benefits and costs of antitrust laws.
62. In many countries, the government chooses to "internalize" the monopoly by owning monopoly providers of goods
and services. (In some cases these firms are "nationalized," and the government actually buys or confiscates firms that
operate in monopoly markets). What would be the advantages and disadvantages of such an approach to ensure that the
"best interest of society" is promoted in these markets? Explain your answer.
63. Why might economists prefer private ownership of monopolies over public ownership of monopolies?
64. One solution to the problems of marginal-cost pricing of a regulated natural monopolist is average cost pricing. In this
model, the monopolist is allowed to price its production at average total cost. How does average-cost pricing differ from
marginal-cost pricing? Does this solution maximize social well-being?
