Chapter 15/Monopoly ❖ 61
33. To maximize total surplus with a monopoly firm, a benevolent social planner would choose the level of output
where
a.
MR = MC.
b.
MR intersects the demand curve.
c.
MC intersects the demand curve.
d.
MR exceeds MC by the greatest amount.
34. Consumers’ willingness to pay for a good minus the amount they actually pay for it equals
a.
consumer surplus.
b.
consumer benefit.
c.
price discriminant.
d.
deadweight loss.
35. The amount that producers receive for a good minus their costs of producing it equals
a.
quantity supplied.
b.
supply price.
c.
deadweight loss.
d.
producer surplus.
36. A monopoly chooses to supply the market with a quantity of a product that is determined by the intersection of
the
a.
marginal cost and demand curves.
b.
average total cost and demand curves.
c.
marginal revenue and average total cost curves.
d.
marginal revenue and marginal cost curves.
62 ❖ Chapter 15/Monopoly
Figure 15-7
DMR
MC
A B
D
C
G
F
Quantity
Price
37. Refer to Figure 15-7. What is the socially efficient price and quantity?
a.
price = F; quantity = A
b.
price = G; quantity = B
c.
price = G; quantity = A
d.
price = D; quantity = A
38. Refer to Figure 15-7. What is the monopoly price and quantity?
a.
price = F; quantity = A
b.
price = G; quantity = B
c.
price = G; quantity = A
d.
price = D; quantity = A
39. Refer to Figure 15-7. What is the area of deadweight loss?
a.
the rectangle (F-D)xA
b.
the triangle 1/2[(F-D)x(B-A)]
c.
the triangle 1/2[(F-G)x(B-A)]
d.
the rectangle (F-D)xA plus the triangle 1/2[(F-D)x(B-A)]
40. Refer to Figure 15-7. What area represents the total surplus lost due to monopoly pricing?
a.
the rectangle (F-D)xA
b.
the triangle 1/2[(F-D)x(B-A)]
c.
the triangle 1/2[(F-G)x(B-A)]
d.
the rectangle (F-D)xA plus the triangle 1/2[(F-D)x(B-A)]
Chapter 15/Monopoly ❖ 63
Figure 15-8
Demand
Marginal Revenue
Marginal Cost
100 150
10
15
20
200
Quantity
Price
41. Refer to Figure 15-8. To maximize total surplus, a benevolent social planner would choose which of the fol-
lowing outcomes?
a.
100 units of output and a price of $10 per unit
b.
150 units of output and a price of $10 per unit
c.
150 units of output and a price of $15 per unit
d.
200 units of output and a price of $10 per unit
42. Refer to Figure 15-8. To maximize its profit, a monopolist would choose which of the following outcomes?
a.
100 units of output and a price of $10 per unit
b.
100 units of output and a price of $20 per unit
c.
150 units of output and a price of $15 per unit
d.
200 units of output and a price of $20 per unit
43. Refer to Figure 15-8. The monopolist’s maximum profit
a.
is $800.
b.
is $1,000.
c.
is $1,250.
d.
cannot be determined from the diagram.
44. Refer to Figure 15-8. The deadweight loss caused by a profit-maximizing monopoly amounts to
a.
$150.
b.
$200.
c.
$250.
d.
$500.
64 ❖ Chapter 15/Monopoly
Figure 15-9
MC
D
MR
ATC
J K L
A
B
C
F
G
H
O
P
Quantity
Price
45. Refer to Figure 15-9. What area measures the deadweight loss?
a.
(B-F)*K
b.
0.5[(P-O)*(L-O)]
c.
0.5[(A-H)*(L-J)]
d.
0.5[(B-F)*(L-K)]
Figure 15-10
1 2 3 4 5 6 7 8 9 10 11 12 Quantity
1
2
3
4
5
6
7
8
9
10 Price
46. Refer to Figure 15-10. Which area represents the deadweight loss from monopoly?
a.
J
b.
H
c.
A+B+C+D+F+I+J+H
d.
J+H
Chapter 15/Monopoly ❖ 65
Figure 15-11
1 2 3 4 5 6 7 8 9 10 11 12 Quantity
1
2
3
4
5
6
7
8
9
10 Price
47. Refer to Figure 15-11. Which area represents the deadweight loss from monopoly?
a.
A+B
b.
C+F
c.
G
d.
A+B+C+F
Figure 15-12
MC
D
MR
ATC
912 15
23
20
15
12
10
9
0
30
Quantity
Price
48. Refer to Figure 15-12. A profit-maximizing monopolist would create a deadweight loss to society valued at
a.
$12.
b.
$24.
c.
$42.
d.
$84.
66 ❖ Chapter 15/Monopoly
Figure 15-13
Demand
Marginal Cost
Q0
(value to buyers)
Quantity
Price
49. Refer to Figure 15-13. A benevolent social planner would have the monopoly operate at an output level
a.
less than Q0.
b.
greater than Q0.
c.
equal to Q0.
d.
equal to zero.
50. Refer to Figure 15–13. If the monopoly operates at an output level less than Q0, then an increase in output
toward (but not exceeding) Q0 would
a.
raise the price and raise total surplus.
b.
lower the price and raise total surplus.
c.
raise the price and lower total surplus.
d.
lower the price and lower total surplus.
Figure 15-14
Demand
MC
MR
10 20 30 40 50 60 70 80 Quantity
10
20
30
40
50
60
70
80
90
100
Price
Chapter 15/Monopoly ❖ 67
51. Refer to Figure 15-14. To maximize total surplus, a benevolent social planner would choose which of the
following outcomes?
a.
Q = 30 and P = 30
b.
Q = 30 and P = 60
c.
Q = 45 and P = 45
d.
Q = 60 and P = 30
52. Refer to Figure 15-14. To maximize its profit, a monopolist would choose which of the following outcomes?
a.
Q = 30 and P = 30
b.
Q = 30 and P = 60
c.
Q = 45 and P = 45
d.
Q = 60 and P = 30
53. Refer to Scenario 15–4. The profit-maximizing monopolist will produce an output level of
a.
80 units.
b.
40 units.
c.
20 units.
d.
10 units.
54. Refer to Scenario 15–4. The profit-maximizing monopolist will charge a price of
a.
$50.
b.
$40.
c.
$20.
d.
$10.
55. Refer to Scenario 15–4. The profit-maximizing monopolist will earn profits of
a.
$6,400.
b.
$3,200.
c.
$1,600.
d.
$800.
68 ❖ Chapter 15/Monopoly
56. Refer to Scenario 15–4. The profit-maximizing monopolist will have a deadweight loss of
a.
$6,400.
b.
$3,200.
c.
$1,600.
d.
$800.
PRICE DISCRIMINATION
1. Price discrimination
a.
is illegal in the United States and Europe.
b.
can occur in both perfectly competitive and monopoly markets.
c.
is illogical because it does not maximize profits.
d.
can maximize profits if the seller can prevent the resale of goods between customers.
2. Price discrimination is the business practice of
a.
bundling related products to increase total sales.
b.
selling the same good at different prices to different customers.
c.
pricing above marginal cost.
d.
hiring marketing experts to increase consumers’ brand loyalty.
3. When a monopolist is able to sell its product at different prices, it is engaging in
a.
distribution pricing.
b.
quality-adjusted pricing.
c.
arbitrage.
d.
price discrimination.
4. The practice of selling the same goods to different customers at different prices, but with the same marginal
cost, is known as
a.
price segregation.
b.
price discrimination.
c.
arbitrage.
d.
monopoly pricing.
5. For a firm to price discriminate,
a.
it must be a natural monopoly.
b.
it must be regulated by the government.
c.
it must have some market power.
d.
consumers must tell the firm what they are willing to pay for the product.
Chapter 15/Monopoly ❖ 69
6. A rational pricing strategy for a profit-maximizing monopolist is
a.
price discrimination.
b.
price segregation.
c.
synergy pricing.
d.
average cost pricing.
7. Price discrimination requires the firm to
a.
separate customers according to their willingnesses to pay.
b.
differentiate between different units of its product.
c.
engage in arbitrage.
d.
use coupons.
8. Which of the following can eliminate the inefficiency inherent in monopoly pricing?
a.
arbitrage
b.
cost-plus pricing
c.
price discrimination
d.
regulations that force monopolies to reduce their levels of output
9. A firm cannot price discriminate if it
a.
has perfect information about consumer demand.
b.
operates in a competitive market.
c.
faces a downward-sloping demand curve.
d.
is regulated by the government.
10. A firm cannot price discriminate if
a.
its has declining marginal revenue.
b.
it operates in a competitive market.
c.
buyers only reveal the price they are willing to pay for the product.
d.
it has a constant marginal cost.
11. Price discrimination adds to social welfare in the form of
(i)
increased total surplus.
(ii)
reduced costs of production.
(iii)
increased consumer surplus.
a.
(i) only
b.
(i) and (ii) only
c.
(i) and (iii) only
d.
(i), (ii), and (iii)
70 ❖ Chapter 15/Monopoly
12. Compared to the monopoly outcome with a single price, imperfect price discrimination
(i)
sometimes raises total surplus.
(ii)
sometimes lowers total surplus.
(iii)
always leads to a lower quantity of output.
a.
(i) and (ii) only
b.
(ii) and (iii) only
c.
(i) and (iii) only
d.
(i), (ii), and (iii)
13. Price discrimination
a.
forces monopolies to charge a lower price as a result of government regulation.
b.
is an attempt by a monopoly to prevent some customers from purchasing its product by charging a
high price.
c.
is an attempt by a monopoly to increases its profit by selling the same good to different customers
at different prices.
d.
increases the consumer surplus associated with a monopolistic market.
14. What do economists call the business practice of selling the same good at difference prices to different cus-
tomers?
a.
price discrimination
b.
collusion
c.
compensating differential
d.
Both a and b are correct
15. A monopolist’s profits with price discrimination will be
a.
lower than if the firm charged a single, profit-maximizing price
b.
the same as if the firm charged a single, profit-maximizing price.
c.
higher than if the firm charged just one price because the firm will capture more consumer surplus.
d.
higher than if the firm charged a single price because the costs of selling the good will be lower.
16. Which of the following is not an example of price discrimination?
a.
A movie theater charges a lower price for a child’s ticket than for an adult’s ticket.
b.
A university rebates part of the cost of tuition in the form of financial aid for needy students.
c.
A local pizza chain offers a “buy three get one free” deal.
d.
An ice cream parlor charges a higher price for ice cream than for sherbet.
Chapter 15/Monopoly ❖ 71
17. A movie theater can increase its profits through price discrimination by charging a higher price to adults and a
lower price to children if it
a.
can prevent children from buying the lower-priced tickets and selling them to adults.
b.
has some degree of monopoly pricing power.
c.
can easily distinguish between the two groups of customers.
d.
All of the above are correct.
18. A movie theater can increase its profits through price discrimination by charging a higher price to adults and a
lower price to children if
a.
adults buy more popcorn than children.
b.
the cost of showing a movie to children is less than the cost of showing a movie to adults.
c.
it has some degree of monopoly-pricing power.
d.
All of the above are correct.
19. Financial aid to college students, quantity discounts, and senior citizen discounts are all examples of
a.
consumer surplus.
b.
deadweight loss.
c.
price discrimination.
d.
nonprofit pricing strategies.
20. When deciding what price to charge consumers, the monopolist may choose to charge them different prices
based on the customers’
a.
geographical location.
b.
age.
c.
income.
d.
All of the above are correct.
21. Many movie theaters allow discount tickets to be sold to senior citizens because
a.
senior-citizen laws mandate such discounts.
b.
goodwill efforts earn community respect and win loyal patrons.
c.
the theaters are profit maximizers.
d.
senior citizens lobby city councils for lower prices.
22. Round-trip airline tickets are usually cheaper if you stay over a Saturday night before you fly back. What is
the reason for this price discrepancy?
a.
Airlines are practicing imperfect price discrimination to raise their profits.
b.
Airlines charge a different rate based on the different nature of peoples’ travel needs.
c.
Airlines are attempting to charge people based on their willingness to pay.
d.
All of the above are correct.
72 ❖ Chapter 15/Monopoly
23. When a local grocery store offers discount coupons in the Sunday paper it is most likely trying to
a.
reduce prices for all customers.
b.
encourage literacy.
c.
encourage arbitrage.
d.
price discriminate.
24. Price discrimination explains why Ivy League universities often base tuition costs on students’
a.
age.
b.
financial resources.
c.
high school GPA.
d.
gender.
25. Some prescription drugs sell for more in the United States than they do in other countries. Which of the fol-
lowing statements about this issue is most likely to be true?
a.
Drug companies are engaging in price discrimination, and this practice certainly reduces global
social welfare.
b.
Global social welfare could be improved if the price in the United States were reduced to the price
charged in other countries.
c.
Global social welfare could be improved if the price in the other countries were increased to the
price charged in the United States.
d.
Drug companies are engaging in price discrimination, but this might improve global social welfare
if it gives more people access to the drugs.
26. Which of the following is not an example of price discrimination by a firm?
a.
children’s meals at a restaurant
b.
a natural gas company charging customers a higher rate in the winter than in the summer
c.
a senior citizens’ discount
d.
coupons in the Sunday newspaper
27. Customers who purchase an audio CD from Sally’s Sounds are charged 20% more than customers who pur-
chase the audio CD from the Sally’s Sounds website. This is an example of
a.
perfect price discrimination.
b.
price discrimination.
c.
deadweight loss.
d.
socially inefficient output.
Chapter 15/Monopoly ❖ 73
28. During the holiday season, high-end retailers frequently place a high price on merchandise on weekends and
discount the price during the week. They do this because they believe that two groups of customers exist:
shoppers with little free time and bargain hunters. Bargain hunters have time to shop around and frequently
shop during the week. What do economists call this price strategy used by high-end retailers?
a.
oligopoly
b.
price discrimination
c.
compensating differential
d.
in-kind transfers
29. Which of the following is an example of price discrimination?
a.
Nabisco provides cents-off coupons for its products.
b.
Amtrak offers a lower price for weekend travel compared to weekday rates on the same routes.
c.
Hotel rates for AAA members are lower than for nonmembers.
d.
All of the above are correct.
30. Which of the following statements comparing monopoly with competition is correct?
a.
A monopolist produces a higher level of output and charges a lower price than a competitive firm
would.
b.
With perfect price discrimination, the total surplus under monopoly can be the same as under
competition.
c.
With or without price discrimination, the consumer surplus under monopoly is at least as large as it
would be under competition.
d.
The deadweight loss associated with monopoly is caused by the positive economic profits of the
monopolist; competitive firms do not earn a positive economic profit so there is no deadweight loss
under competition.
31. Suppose a monopolist is able to charge each customer a price equal to that customer’s willingness-to-pay for
the product. Then the monopolist is engaging in
a.
marginal cost pricing.
b.
arbitrage pricing.
c.
voodoo economics.
d.
perfect price discrimination.
74 ❖ Chapter 15/Monopoly
32. Suppose that a professional photographer takes a prize-winning digital photo. She can sell a 5″x7” color print
of the photo for $10. She can also sell the digital file for $20. There are 500 people willing to buy the color
print and 2,000 people willing to buy the digital file. Assume the costs to the photographer are zero and that
the people who purchase the digital file cannot resell the file itself or any prints made from it. What should
she do in order to maximize her profits?
a.
earn $5,000 by selling only the color prints
b.
earn $40,000 by selling only the digital files
c.
earn $45,000 by selling both the color prints and the digital files at their respective prices
d.
We do not have enough information with which to answer this question.
Scenario 15-5
An airline knows that there are two types of travelers: business travelers and vacationers. For a particular
flight, there are 100 business travelers who will pay $600 for a ticket while there are 50 vacationers who will
pay $300 for a ticket. There are 150 seats available on the plane. Suppose the cost to the airline of providing
the flight is $20,000, which includes the cost of the pilots, flight attendants, fuel, etc.
33. Refer to Scenario 15-5. How much profit will the airline earn if it sets the price of each ticket at $600?
a.
-$5,000
b.
$15,000
c.
$40,000
d.
$60,000
34. Refer to Scenario 15-5. How much profit will the airline earn if it sets the price of each ticket at $300?
a.
-$15,000
b.
-$5,000
c.
$25,000
d.
$45,000
35. Refer to Scenario 15-5. How much profit will the airline earn if it engages in price discrimination?
a.
-$5,000
b.
$40,000
c.
$55,000
d.
$75,000
36. Refer to Scenario 15-5. How much additional profit can the airline earn by charging each customer their
willingness to pay relative to charging a flat price of $600 per ticket?
a.
$15,000
b.
$25,000
c.
$40,000
d.
$70,000
Chapter 15/Monopoly ❖ 75
37. Refer to Scenario 15-5. How much additional profit can the airline earn by charging each customer their
willingness to pay relative to charging a flat price of $300 per ticket?
a.
$10,000
b.
$15,000
c.
$30,000
d.
$45,000
Scenario 15-6
The concert promoters of a heavy-metal band, WeR2Loud, know that there are two types of concert-goers:
die-hard fans and casual fans. For a particular WeR2Loud concert, there are 1,000 die-hard fans who will pay
$150 for a ticket and 500 casual fans who will pay $50 for a ticket. There are 1,500 seats available at the
concert venue. Suppose the cost of putting on the concert is $50,000, which includes the cost of the band,
lighting, security, etc.
38. Refer to Scenario 15-6. How much profit will the concert promoters earn if they set the price of each ticket
at $150?
a.
$75,000
b.
$100,000
c.
$150,000
d.
$175,000
39. Refer to Scenario 15-6. How much profit will the concert promoters earn if they set the price of each ticket
at $50?
a.
$25,000
b.
$75,000
c.
$100,000
d.
$150,000
40. Refer to Scenario 15-6. How much profit will the concert promoters earn if they engage in price discrimina-
tion?
a.
$100,000
b.
$125,000
c.
$150,000
d.
$175,000
41. Refer to Scenario 15-6. How much additional profit can the concert promoters earn by charging each cus-
tomer 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
76 ❖ Chapter 15/Monopoly
42. Refer to Scenario 15-6. How much additional profit can the concert promoters earn by charging each cus-
tomer 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
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.
43. 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
44. 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
45. 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.
Chapter 15/Monopoly ❖ 77
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.
46. 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
47. 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
48. 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
49. 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
78 ❖ Chapter 15/Monopoly
Figure 15-15
MC=ATC
Demand
MR
50 100 150 200 250 300 350 400 450 500 550 600 Quantity
5
10
15
20
25
30
35
40
45
50 Price
50. Refer to Figure 15-15. If the monopoly firm is not allowed to price discriminate, then consumer surplus
amounts to
a.
$0.
b.
$500.
c.
$1,000.
d.
$2,000.
51. Refer to Figure 15-15. If the monopoly firm perfectly price discriminates, then consumer surplus amounts to
a.
$0.
b.
$250.
c.
$500.
d.
$1,000.
52. Refer to Figure 15-15. If the monopoly firm is not allowed to price discriminate, then the deadweight loss
amounts to
a.
$50.
b.
$100.
c.
$500.
d.
$1,000.
53. Refer to Figure 15-15. If the monopoly firm perfectly price discriminates, then the deadweight loss amounts
to
a.
$0.
b.
$100.
c.
$200.
d.
$500.
Chapter 15/Monopoly ❖ 79
54. Refer to Figure 15-15. If there are no fixed costs of production, monopoly profit without price discrimination
equals
a.
$500.
b.
$1,000.
c.
$2,000.
d.
$4,000.
55. Refer to Figure 15-15. If there are no fixed costs of production, monopoly profit with perfect price discrimi-
nation equals
a.
$500.
b.
$1,000.
c.
$2,000.
d.
$4,000.
Figure 15-16
22.5
MC=ATC
Demand
MR
50 100 150 200 250 300 350 400 450 500 550 600 650 700 750 800 Quantity
5
10
15
20
25
30
35
40
45
50 Price
56. Refer to Figure 15-16. 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.
57. Refer to Figure 15-16. If the monopoly firm perfectly price discriminates, then consumer surplus amounts to
a.
$0.
b.
$1,562.50.
c.
$3,125.
d.
$6,250.
80 ❖ Chapter 15/Monopoly
58. Refer to Figure 15-16. 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.
59. Refer to Figure 15-16. 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.
60. Refer to Figure 15-16. 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.
61. Refer to Figure 15-16. If there are no fixed costs of production, monopoly profit with perfect price discrimi-
nation equals
a.
$1.
b.
$1,562.5.
c.
$3,125.
d.
$6,250.