ECON CH 15 – Flashcards

Angelo is a wholesale meatball distributor. He sells his meatballs to all the finest Italian restaurants in town. Nobody can make meatballs like Angelo. As a result, his is the only business in town that sells meatballs to restaurants. Assuming that Angelo is maximizing his profit, which of the following statements is true? a. Meatball prices will be less than marginal cost. b. Meatball prices will equal marginal cost. c. Meatball prices will exceed marginal cost. d. Meatball prices will be a function of supply and demand and will therefore oscillate around marginal costs.

Which of the following statements is (are) true of a monopoly? (i) A monopoly has the ability to set the price of its product at whatever level it desires. (ii) A monopoly's total revenue will always increase when it increases the price of its product. (iii) A monopoly can earn unlimited profits. a. (i) only b. (ii) only c. (i) and (ii) d. (ii) and (iii)

A fundamental source of monopoly market power arises from a. perfectly elastic demand. b. perfectly inelastic demand. c. barriers to entry. d. availability of "free" natural resources, such as water or air.

A natural monopoly occurs when a. the product is sold in its natural state (such as water or diamonds). b. there are economies of scale over the relevant range of output. c. the firm is characterized by a rising marginal cost curve. d. production requires the use of free natural resources, such as water or air.

When a natural monopoly exists, it is a. always cost effective for government-owned firms to produce the product. b. never cost effective for one firm to produce the product. c. always cost effective for two or more private firms to produce the product. d. never cost effective for two or more private firms to produce the product.

6. Which of the following statements is true about patents and copyrights? (i) They both have benefits and costs. (ii) They lead to higher prices. (iii) They enhance the ability of monopolists to earn above-average profits. a. (i) and (ii) b. (ii) and (iii) c. (ii) only d. (i), (ii), and (iii)

10. A firm that is a natural monopoly a. is not likely to be concerned about new entrants eroding its monopoly power. b. is taking advantage of economies of scale. c. would experience a higher average total cost if more firms entered the market. d. All of the above are correct.

Most markets are not monopolies in the real world because a. firms usually face downward-sloping demand curves. b. supply curves slope upward. c. price is usually set equal to marginal cost by firms. d. there are reasonable substitutes for most goods.

When a firm operates under conditions of monopoly, its price is a. not constrained. b. constrained by marginal cost. c. constrained by demand. d. constrained only by its social agenda.

A profit-maximizing monopolist will produce the level of output at which a. average revenue is equal to average total cost. b. average revenue is equal to marginal cost. c. marginal revenue is equal to marginal cost. d. total revenue is equal to opportunity cost.

14. For a profit-maximizing monopolist, a. P > MR = MC. b. P = MR = MC. c. P > MR > MC. d. MR < MC < P.

18. Marginal revenue can become negative for a. both competitive and monopoly firms. b. competitive firms, but not for monopoly firms. c. monopoly firms, but not for competitive firms. d. neither competitive nor monopoly firms.

19. The monopolist's profit-maximizing quantity of output is determined by the intersection of which of the following two curves? a. Marginal cost and demand b. Marginal cost and marginal revenue c. Average total cost and marginal revenue d. Average variable cost and average revenue

20. A monopolist can sell 200 units of output for $36.00 per unit. Alternatively, it can sell 201 units of output for $35.80 per unit. The marginal revenue of the 201st unit of output is a. $-4.20. b. $-0.20. c. $4.20. d. $35.80.

24. A reduction in a monopolist's fixed costs would a. decrease the profit-maximizing price and increase the profit-maximizing quantity produced. b. increase the profit-maximizing price and decrease the profit-maximizing quantity produced. c. not effect the profit-maximizing price or quantity. d. possibly increase, decrease or not effect profit-maximizing price and quantity, depending on the elasticity of demand.

25. If a monopolist can sell 7 units when the price is $4 and 8 units when the price is $3, then marginal revenue of selling the eighth unit is equal to a. $3. b. $4. c. $24. d. -$4.

26. The socially efficient level of production occurs where the marginal cost curve intersects which of the following curves? a. Average variable cost b. Average total cost c. Demand d. Marginal revenue

27. Consider a profit-maximizing monopoly pricing under the following conditions. The profit-maximizing price charged for goods produced is $12.The intersection of the marginal revenue and marginal cost curves occurs where output is 10 units and marginal cost is $6. The socially efficient level of production is 12 units. The demand curve and marginal cost curves are linear. What is the deadweight loss? a. $4 b. $6 c. $12 d. $16

32. "Monopolists do not worry about efficient production and minimizing costs since they can just pass along any increase in costs to their consumers." This statement is a. false; price increases will mean fewer sales, and lower costs will mean higher profits (or smaller losses). b. true; this is the primary reason why economists believe that monopolies result in economic inefficiency. c. false; the monopolist is a price taker. d. true; consumers in a monopoly market have no substitutes to turn to when the monopolist raises prices.

33. Since natural monopolies have a declining average cost curve, regulating natural monopolies by setting price equal to marginal cost would a. cause the monopolist to operate at a loss. b. result in a less than optimal total surplus. c. maximize producer surplus. d. result in higher profits for the monopoly.

34. 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.

35. When a monopolist is able to sell its product at different prices, it is engaging in a. distribution pricing. b. quality-adjusted pricing. c. price differentiation. d. price discrimination.

39. 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.

40. Price discrimination requires the firm to a. separate customers according to their willingness to pay. b. differentiate between different units of its product. c. engage in arbitrage. d. use coupons.

41. A firm cannot price discriminate if a. its marginal revenue curve is linear for all levels of output. 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.

42. Many movie theaters allow discount tickets to be sold to senior citizens because a. senior-citizen laws mandate such discounts. b. efforts of goodwill show community respect and win loyal patrons. c. the theaters are profit maximizers. d. senior citizens usually comprise a solid portion of those who voice their opinions.

43. 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.

45. The De Beers Diamond company advertises heavily to promote the sale of all diamonds, not just its own. This is evidence that it has a monopoly position to some degree.

The amount of power that a monopoly has depends on whether there are close substitutes for its product.

Declining average total cost with increased production is one of the defining characteristics of a natural monopoly.

Like monopolies, competitive firms choose to produce a quantity in which marginal revenue equals marginal cost.

It doesn't make sense to talk about a monopolist's supply curve.

By selling hardcover books to die-hard fans and paperback books to less enthusiastic readers, the publisher is able to price discriminate and raise its profit.

Movie theatres charge different prices to different groups of people based on the differing marginal costs that exist from group to group.