Exam 15: Monopoly

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. -Refer to Scenario 15-5. How much profit will the airline earn if it sets the price of each ticket at $600?

A monopolist produces an output level where marginal revenue equals marginal cost and charges a price where marginal cost equals average total cost.

​Figure 15-22 The diagram depicts the market situation for a monopoly pastry shop called Bearclaws. -Refer to Figure 15-22. Based upon the information shown, what price will Bearclaws charge to maximize profits?

Scenario 15-2 Consider a local, privately-owned electrical cooperative named Poweshiek Power Company (PPCo). PPCo has just completed a clean-coal-burning electrical power plant in Iowa. Currently, PPCo can meet the electricity needs of all residents in the county. In fact, its capacity far exceeds the needs of the county. After just a few years of operation, the shareholders of PPCo experienced incredibly high rates of return on their investment due to the profitability of the corporation. -Refer to Scenario 15-2. Which of the following statements is most likely to be true? (i) New entrants to the market know they will have a smaller market share than PPCo currently has. (ii) PPCo is most likely experiencing rising marginal cost. (iii) PPCo is a natural monopoly. (iv) PPCo is most likely experiencing declining average total cost.

If a monopolist can practice perfect price discrimination, the monopolist will

Which of the following statements is not correct?

Price discrimination adds to social welfare in the form of (i) Increased total surplus. (ii) Reduced costs of production. (iii) Increased consumer surplus.

Figure 15-4 -Refer to Figure 15-4. Profit can always be increased by increasing the level of output by one unit if the monopolist is currently operating at (i) Q1) (ii) Q2) (iii) Q3) (iv) Q4)

Table 15-21 Tommy's Tie Company, a monopolist, has the following cost and revenue information. Assume that Tommy's is able to engage in perfect price discrimination. -Refer to Table 15-21. If the monopolist can engage in perfect price discrimination, what is the total revenue when 7 ties are sold?

The collection of statutes aimed at curbing monopoly power is called

The reason to regulate utilities instead of using antitrust laws to promote competition is that a utility is usually a

Perfect price discrimination

Figure 15-7 -Refer to Figure 15-7. In order to maximize profits, the monopolist should charge a price of

Which type of public policy toward monopolies is much more common in Europe than in the United States?

Selling a good at a price determined by the intersection of the demand curve and the marginal cost curve is consistent with the (i) Socially-optimal level of output. (ii) Market solution for profit-maximizing competitive firms. (iii) Market solution for a profit-maximizing monopoly.

Due to the nature of the patent laws on pharmaceuticals, the market for such drugs

As a monopolist increases the quantity of output it sells, the price consumers are willing to pay for the good

By offering lower prices to customers who buy a large quantity, a monopoly is price discriminating.

Figure 15-2 -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?

If the government regulates the price a natural monopolist can charge to be equal to the firm's marginal cost, the government will likely need to subsidize the firm.