Question 1

Why does a price-discriminating monopolist earn more profit than a monopolist who does not price-discriminate?

Accepted Answer

A price-discriminating monopolist can ea

Question 2

Refer to the graph shown. If hamburgers are produced by a pure monopoly that maximizes profit, the price of hamburger dinners will be:

Accepted Answer

A) $ 2. 
B) $ 4. 
C) $ 5. 
D) $ 6. 
A) $ 2. 
B) $ 4. 
C) $ 5. 
D) $ 6.

Question 3

You own four firms that produce different products.The following table summarizes the conditions in each firm.After calculating the missing numbers for each firm,choose a decision for each firm from among the following four decisions,and explain how you reached each particular decision.
(a)continue producing the same output level
(b)shut down
(c)increase output
(d)decrease output $$\begin{array} { | c | c | c | c | c | c | c | c | c | } 
\hline \text { Firm } & \text { P } & \text { MR } & \text { TR } & \text { Q } & \text { TC } & \text { MC } & \text { ATC } & \text { AVC } \
\hline \text { A } & 11 & 8 & & 20 & 200 & 5 & & 9 \
\hline \text { B } & 3 & 1 & & 100 & & 1.5 & 2.5 & 2 \
\hline \text { C } & 4 & 2 & 200 & & & 2 & 7 & 5 \
\hline \text { D } & 8 & 5 & & 10 & 70 & 5 & & 6 \
\hline
\end{array}$$

Accepted Answer

\[\begin{array} { | c | c | c | c | c |

Question 4

If MR < MC, a monopolist should:

Accepted Answer

A) decrease production. 
B) increase production. 
C) maintain the same level of production. 
D) stop producing. 
A) decrease production. 
B) increase production. 
C) maintain the same level of production. 
D) stop producing.

Question 5

A natural monopoly:

Accepted Answer

A) has an average total cost curve that reaches minimum at a low level of output. 
B) is usually subject to antitrust suits. 
C) is usually allowed to choose its price so as to maximize profits in the United States. 
D) occurs when a single firm can supply the entire market demand for a product at a lower average total cost than would be possible if two or more firms supplied the market. 
A) has an average total cost curve that reaches minimum at a low level of output. 
B) is usually subject to antitrust suits. 
C) is usually allowed to choose its price so as to maximize profits in the United States. 
D) occurs when a single firm can supply the entire market demand for a product at a lower average total cost than would be possible if two or more firms supplied the market.

Question 6

Refer to the graph shown. If this monopolist produces 45 units of output per day, it will:

Accepted Answer

A) be maximizing profit. 
B) charge a price that exceeds its marginal cost. 
C) be able to increase profit by producing less per day. 
D) be able to increase profit by producing more per day. 
A) be maximizing profit. 
B) charge a price that exceeds its marginal cost. 
C) be able to increase profit by producing less per day. 
D) be able to increase profit by producing more per day.

Question 7

For a monopolistic competitor:

Accepted Answer

A) P = ATC in long-run equilibrium. 
B) P > ATC in long-run equilibrium. 
C) P = MR in long-run equilibrium. 
D) P = MC in long-run equilibrium. 
A) P = ATC in long-run equilibrium. 
B) P > ATC in long-run equilibrium. 
C) P = MR in long-run equilibrium. 
D) P = MC in long-run equilibrium.

Question 8

Platform businesses are firms that:

Accepted Answer

A) facilitate interaction among people. 
B) produce platforms for producing goods. 
C) focus on freedom of speech. 
D) initiate international trade. 
A) facilitate interaction among people. 
B) produce platforms for producing goods. 
C) focus on freedom of speech. 
D) initiate international trade.

Question 9

A monopoly firm selling textbooks to students in a small town is currently maximizing profits by charging a price of $50 per book. It follows that the marginal cost of textbooks is:

Accepted Answer

A) equal to $50. 
B) less than $50. 
C) greater than $50. 
D) greater than the average total cost. 
A) equal to $50. 
B) less than $50. 
C) greater than $50. 
D) greater than the average total cost.

Question 10

If there were no barriers to entry:

Accepted Answer

A) natural monopolies would still exist. 
B) patents could still be offered by the government. 
C) "just" monopolies would still exist. 
D) firms would compete away monopoly profits. 
A) natural monopolies would still exist. 
B) patents could still be offered by the government. 
C) "just" monopolies would still exist. 
D) firms would compete away monopoly profits.

Question 11

Refer to the graph shown. If the monopolist produces at the output level at which price equals marginal cost, it will:

Accepted Answer

A) maximize profits. 
B) earn zero profits. 
C) earn positive profits but not maximum profits. 
D) incur a loss. 
A) maximize profits. 
B) earn zero profits. 
C) earn positive profits but not maximum profits. 
D) incur a loss.

Question 12

It makes sense for Wendy's to advertise its new menu that allows customers to choose fruit or salad as a substitute for French fries in its values meals, as long as doing so raises:

Accepted Answer

A) revenue by more than it raises the cost of advertising. 
B) any revenue at all. 
C) costs. 
D) revenue by less than the cost of advertising. 
A) revenue by more than it raises the cost of advertising. 
B) any revenue at all. 
C) costs. 
D) revenue by less than the cost of advertising.

Question 13

Refer to the graph shown depicting a monopolistically competitive firm. The marginal revenue curve is represented by curve:

Accepted Answer

A) A. 
B) B. 
C) C. 
D) D. 
A) A. 
B) B. 
C) C. 
D) D.

Question 14

Economists may prefer a competitive outcome to a monopoly outcome due to the "welfare loss" associated with the latter.Draw a picture to illustrate the welfare loss associated with the monopoly outcome.

Accepted Answer

The filled-in rectangle is surplus trans

Question 15

The Wall Street Journal magazine offers a significant discount to students who purchase a one-year subscription. If the reason for the discount is price discrimination, we can conclude that:

Accepted Answer

A) students have a more elastic demand for newspapers than does the general public. 
B) students have a less elastic demand for newspapers than does the general public. 
C) there is no difference between a student's elasticity of demand for newspapers and any other person's elasticity of demand. 
D) students have a perfectly inelastic demand for newspapers. 
A) students have a more elastic demand for newspapers than does the general public. 
B) students have a less elastic demand for newspapers than does the general public. 
C) there is no difference between a student's elasticity of demand for newspapers and any other person's elasticity of demand. 
D) students have a perfectly inelastic demand for newspapers.

Question 16

Refer to the graph shown. If this monopolist were forced to set price equal to average total cost, it would charge a price of:

Accepted Answer

A) $0.15. 
B) $0.30. 
C) $0.75. 
D) $0.90. 
A) $0.15. 
B) $0.30. 
C) $0.75. 
D) $0.90.

Question 17

In the case of a natural monopoly, as the number of firms in the industry increases, the average cost of producing a:

Accepted Answer

A) fixed number of units decreases. 
B) fixed number of units stays the same. 
C) variable number of units stays the same. 
D) fixed number of units increases. 
A) fixed number of units decreases. 
B) fixed number of units stays the same. 
C) variable number of units stays the same. 
D) fixed number of units increases.

Question 18

Microsoft has a special version of its Windows operating system that it sells at a low price in countries where cheap pirated software is widespread. The cost of producing another copy of this software is the same as the cost of producing another copy of the regular Windows product. Selling this "special edition" software at a low price in certain countries is very similar to what economists call:

Accepted Answer

A) price discrimination. 
B) natural monopoly. 
C) a price taker. 
D) welfare loss. 
A) price discrimination. 
B) natural monopoly. 
C) a price taker. 
D) welfare loss.

Question 19

Platform businesses often don't charge people for their product. They do this because:

Accepted Answer

A) serving the public is what is meant by platform. 
B) they gain goodwill by not charging for their product. 
C) they are paid by government. 
D) they earn income by mining the data they collect. 
A) serving the public is what is meant by platform. 
B) they gain goodwill by not charging for their product. 
C) they are paid by government. 
D) they earn income by mining the data they collect.

Question 20

Refer to the graph shown of average costs for a typical firm. The per-unit cost of the industry would be $8 if:

Accepted Answer

A) two firms produced 250 units of output each. 
B) one firm produced 500 units of output. 
C) two firms produced 1,000 units of output each. 
D) one firm produced 667 units of output. 
A) two firms produced 250 units of output each. 
B) one firm produced 500 units of output. 
C) two firms produced 1,000 units of output each. 
D) one firm produced 667 units of output.

Exam 14: Monopoly and Monopolistic Competition

Why does a price-discriminating monopolist earn more profit than a monopolist who does not price-discriminate?

Refer to the graph shown. If hamburgers are produced by a pure monopoly that maximizes profit, the price of hamburger dinners will be:

If MR < MC, a monopolist should:

A natural monopoly:

Refer to the graph shown. If this monopolist produces 45 units of output per day, it will:

For a monopolistic competitor:

Platform businesses are firms that:

A monopoly firm selling textbooks to students in a small town is currently maximizing profits by charging a price of $50 per book. It follows that the marginal cost of textbooks is:

If there were no barriers to entry:

Refer to the graph shown. If the monopolist produces at the output level at which price equals marginal cost, it will:

It makes sense for Wendy's to advertise its new menu that allows customers to choose fruit or salad as a substitute for French fries in its values meals, as long as doing so raises:

Refer to the graph shown depicting a monopolistically competitive firm. The marginal revenue curve is represented by curve:

Economists may prefer a competitive outcome to a monopoly outcome due to the "welfare loss" associated with the latter.Draw a picture to illustrate the welfare loss associated with the monopoly outcome.

The Wall Street Journal magazine offers a significant discount to students who purchase a one-year subscription. If the reason for the discount is price discrimination, we can conclude that:

Refer to the graph shown. If this monopolist were forced to set price equal to average total cost, it would charge a price of:

In the case of a natural monopoly, as the number of firms in the industry increases, the average cost of producing a:

Platform businesses often don't charge people for their product. They do this because:

Refer to the graph shown of average costs for a typical firm. The per-unit cost of the industry would be $8 if:

Economics and Economic Reasoning

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