Exam 13: Monopoly and Antitrust Policy

Polly's Piñatas has a local monopoly in the sale of piñatas. The table below shows the demand for piñatas at various prices. The total cost of production of the various levels of output is also shown. Calculate marginal revenue and marginal cost for the firm. What level of output maximizes profit? What price should the firm charge?

Below are the demand, marginal cost, and marginal revenue curves for Lita's, Inc. Lita has decided that her firm should produce 20 units per day. Is this the profit-maximizing level of output? Explain.

Using Table 13.1 calculate the total revenue of this firm at each price and quantity demanded. Explain why total revenue eventually declines.

Comment on the following statement: "For a monopolist, marginal revenue is always equal to price."

A newspaper article in commenting on the local electric monopoly tells its readers that the company's dominant economic position as a monopolist allows it to produce whatever output level it desires and to set whatever price it wishes. Critically evaluate this position.

What would be the economic dangers of eliminating patent protection in the pharmaceutical industry as a means of "eliminating monopoly power"?

Describe the supply curve in a monopoly market.

From an economic standpoint, patents reduce efficiency because they serve as a barrier to entry and thus limit market competition. Are there any positive economic benefits of patents? Explain.

A successful local entrepreneur opens up the only Chevrolet dealership in a medium sized Texas town. Why does this not necessarily constitute a monopoly position?

Critically evaluate the following statement. "Since monopolies are by definition a one-firm industry they are able to charge the consumer the highest price possible."

Why would a monopolist never price in the inelastic portion of the demand curve?

A monopolist has the power to set price, but is not entirely free to set the price of its product. Explain.

The railroad companies of Pacific Union and Central Pacific were both built with massive government subsidies often on a per-mile basic in the late 19^th century, which created railroad monopolies. Both failed soon after completion of their lines. The Great Northern railroad took much longer to build since it was completed without government subsidies. It turned out to be much more successful than either Pacific Union or Central Pacific. What could account for this apparent disparity?

Why is marginal revenue less than price for a monopolist?

What is a pure monopoly?

What are the assumptions of a pure monopoly?

What decision must be made by firms with market power that is not made by firms which operate in perfectly competitive markets? Explain.

What is an imperfectly competitive industry?

Comment on the following statement: "A firm with market power is able to charge any price it likes."

The table below represents the demand for Morey's Marbles which has a monopoly in the sale of marbles. Calculate total revenue and marginal revenue for the levels of output given.