Question 1

Define price discrimination. What factors must be present in order for a monopolist to price discriminate? Why do firms price discriminate?

Accepted Answer

Price discrimination is selling a good o

Question 2

The Public Service Company of Colorado is a natural monopoly in the transmission and distribution of electric power. As such, it will incur an economic loss if it

Accepted Answer

A)  goes out of business. 
B)  prices its services at average total cost. 
C)  prices its services at marginal cost. 
D)  all of the above 
A)  goes out of business. 
B)  prices its services at average total cost. 
C)  prices its services at marginal cost. 
D)  all of the above

Question 3

-If an average cost pricing rule is imposed on the natural monopoly shown in the figure above, then the price will be

Accepted Answer

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

Question 4

A marginal cost pricing rule for a natural monopoly sets

Accepted Answer

A)  price equal to marginal cost and greater than average total cost. 
B)  marginal revenue equal to marginal cost. 
C)  marginal revenue equal to average total cost. 
D)  price equal to marginal cost. 
A)  price equal to marginal cost and greater than average total cost. 
B)  marginal revenue equal to marginal cost. 
C)  marginal revenue equal to average total cost. 
D)  price equal to marginal cost.

Question 5

Under rate of return regulation, a regulated firm has an incentive to

Accepted Answer

A)  use an efficient amount of capital. 
B)  set its price equal to its marginal cost. 
C)  hide losses from bad debts. 
D)  inflate its costs. 
A)  use an efficient amount of capital. 
B)  set its price equal to its marginal cost. 
C)  hide losses from bad debts. 
D)  inflate its costs.

Question 6

A monopolist can make an economic profit in the long run because of

Accepted Answer

A)  the relatively elastic demand for its product. 
B)  the relatively inelastic demand for its product. 
C)  the firm's price setting behavior. 
D)  barriers to entry. 
A)  the relatively elastic demand for its product. 
B)  the relatively inelastic demand for its product. 
C)  the firm's price setting behavior. 
D)  barriers to entry.

Question 7

If a monopolist can perfectly price discriminate, then

Accepted Answer

A)  price equals average cost for each unit sold. 
B)  price equals marginal cost for each unit sold. 
C)  price equals marginal cost for the last unit sold. 
D)  the firm can ignore the marginal cost curve. 
A)  price equals average cost for each unit sold. 
B)  price equals marginal cost for each unit sold. 
C)  price equals marginal cost for the last unit sold. 
D)  the firm can ignore the marginal cost curve.

Question 8

-The figure above shows the demand curve (D) faced by Visual, Inc., a cable TV company, and the firm's marginal revenue (MR), marginal cost (MC), and average cost (LRAC) curves. If Visual is regulated according to an average cost pricing rule, there will be

Accepted Answer

A)  a deadweight loss of $6 million per month. 
B)  a deadweight loss of $24 million per month. 
C)  a deadweight loss of $12 million per month. 
D)  no deadweight loss. 
A)  a deadweight loss of $6 million per month. 
B)  a deadweight loss of $24 million per month. 
C)  a deadweight loss of $12 million per month. 
D)  no deadweight loss.

Question 9

-The area of economic profit shown in the above figure for the single-price monopolist is

Accepted Answer

A)  bed. 
B)  P3P5fc. 
C)  0P5fQ1. 
D)  0P4eQ3. 
A)  bed. 
B)  P3P5fc. 
C)  0P5fQ1. 
D)  0P4eQ3.

Question 10

There is no deadweight loss if the regulatory rule for a natural monopoly

Accepted Answer

A)  is an average cost pricing rule. 
B)  sets price at a level that enables the regulated firm to earn a specified rate of return on its capital. 
C)  is a marginal cost pricing rule. 
D)  prevents the firm from engaging in any form of price discrimination. 
A)  is an average cost pricing rule. 
B)  sets price at a level that enables the regulated firm to earn a specified rate of return on its capital. 
C)  is a marginal cost pricing rule. 
D)  prevents the firm from engaging in any form of price discrimination.

Question 11

-The figure above shows the demand and cost curves for a single-price monopoly. What price will the firm charge?

Accepted Answer

A)  $50 per unit 
B)  $30 per unit 
C)  $20 per unit 
D)  $10 per unit 
A)  $50 per unit 
B)  $30 per unit 
C)  $20 per unit 
D)  $10 per unit

Question 12

When comparing perfect competition to a single-price monopoly with the same costs

Accepted Answer

A)  both market types use resources efficiently. 
B)  there is a deadweight loss associated with a monopoly. 
C)  the sum of producer and consumer surplus is maximized under a monopoly. 
D)  the sum of producer and consumer surplus is minimized under perfect competition. 
A)  both market types use resources efficiently. 
B)  there is a deadweight loss associated with a monopoly. 
C)  the sum of producer and consumer surplus is maximized under a monopoly. 
D)  the sum of producer and consumer surplus is minimized under perfect competition.

Question 13

If a natural monopoly does NOT inflate its costs, the output it produces is the smallest when the monopoly is

Accepted Answer

A)  left unregulated. 
B)  regulated according to an average cost pricing rule. 
C)  regulated according to a marginal cost pricing rule. 
D)  regulated to maximize total surplus. 
A)  left unregulated. 
B)  regulated according to an average cost pricing rule. 
C)  regulated according to a marginal cost pricing rule. 
D)  regulated to maximize total surplus.

Question 14

Price discrimination, where different units of a good are sold for different prices

Accepted Answer

A)  is impossible because there can only be one market price. 
B)  can be effectively practiced by all monopolists. 
C)  maximizes consumer welfare because each consumer pays only the price he or she is willing to pay. 
D)  is possible if the good cannot be resold. 
A)  is impossible because there can only be one market price. 
B)  can be effectively practiced by all monopolists. 
C)  maximizes consumer welfare because each consumer pays only the price he or she is willing to pay. 
D)  is possible if the good cannot be resold.

Question 15

An industry in which economies of scale allow one firm to supply the entire market at the lowest possible cost is called a

Accepted Answer

A)  legal monopoly. 
B)  natural monopoly. 
C)  single-price monopoly. 
D)  one-firm monopoly. 
A)  legal monopoly. 
B)  natural monopoly. 
C)  single-price monopoly. 
D)  one-firm monopoly.

Question 16

Which of the following is a characteristic of monopoly in the long run?

Accepted Answer

A)  The firm makes zero economic profit. 
B)  The firm can make an economic profit. 
C)  Price equals marginal cost. 
D)  Price equals marginal revenue. 
A)  The firm makes zero economic profit. 
B)  The firm can make an economic profit. 
C)  Price equals marginal cost. 
D)  Price equals marginal revenue.

Question 17

The social interest theory of regulation suggests that the political process and regulations will ________ and the capture theory of regulation suggests that the political process and regulations will ________.

Accepted Answer

A)  seek to minimize deadweight loss; serve the interests of the producers 
B)  try to maximize the producers' economic profits; seek to minimize deadweight loss 
C)  be unaffected by deadweight loss; increase the firms economic profits 
D)  ignore producers' interests and concentrate on consumers' interests; seek to minimize firms' economic profits 
A)  seek to minimize deadweight loss; serve the interests of the producers 
B)  try to maximize the producers' economic profits; seek to minimize deadweight loss 
C)  be unaffected by deadweight loss; increase the firms economic profits 
D)  ignore producers' interests and concentrate on consumers' interests; seek to minimize firms' economic profits

Question 18

-Prime Pharmaceuticals has developed a new asthma medicine, for which it has a patent. An inhaler can be produced at a constant marginal cost of $2/inhaler. The demand curve, marginal revenue curve, and marginal cost curve for this new asthma inhaler are in the figure above. With its patent giving it a monopoly for its new inhaler, if Prime Pharmaceuticals could perfectly price discriminate, then consumer surplus would equal

Accepted Answer

A)  $64 million. 
B)  $16 million. 
C)  $32 million. 
D)  zero. 
A)  $64 million. 
B)  $16 million. 
C)  $32 million. 
D)  zero.

Question 19

Which of the following is LEAST likely to be a monopoly?

Accepted Answer

A)  the holder of a public franchise 
B)  a pharmaceutical company with a patent on a drug 
C)  a store in a large shopping mall 
D)  an artist who owns a copyright for a painting 
A)  the holder of a public franchise 
B)  a pharmaceutical company with a patent on a drug 
C)  a store in a large shopping mall 
D)  an artist who owns a copyright for a painting

Question 20

Price cap regulation is a

Accepted Answer

A)  price ceiling. 
B)  price floor. 
C)  form of marginal cost regulation. 
D)  type of rate of return regulation. 
A)  price ceiling. 
B)  price floor. 
C)  form of marginal cost regulation. 
D)  type of rate of return regulation.

Define price discrimination. What factors must be present in order for a monopolist to price discriminate? Why do firms price discriminate?

The Public Service Company of Colorado is a natural monopoly in the transmission and distribution of electric power. As such, it will incur an economic loss if it

-If an average cost pricing rule is imposed on the natural monopoly shown in the figure above, then the price will be

A marginal cost pricing rule for a natural monopoly sets

Under rate of return regulation, a regulated firm has an incentive to

A monopolist can make an economic profit in the long run because of

If a monopolist can perfectly price discriminate, then

-The figure above shows the demand curve (D) faced by Visual, Inc., a cable TV company, and the firm's marginal revenue (MR), marginal cost (MC), and average cost (LRAC) curves. If Visual is regulated according to an average cost pricing rule, there will be

-The area of economic profit shown in the above figure for the single-price monopolist is

There is no deadweight loss if the regulatory rule for a natural monopoly

-The figure above shows the demand and cost curves for a single-price monopoly. What price will the firm charge?

When comparing perfect competition to a single-price monopoly with the same costs

If a natural monopoly does NOT inflate its costs, the output it produces is the smallest when the monopoly is

Price discrimination, where different units of a good are sold for different prices

An industry in which economies of scale allow one firm to supply the entire market at the lowest possible cost is called a

Which of the following is a characteristic of monopoly in the long run?

The social interest theory of regulation suggests that the political process and regulations will and the capture theory of regulation suggests that the political process and regulations will .

Which of the following is LEAST likely to be a monopoly?

Price cap regulation is a

What Is Economics

The Economic Problem

Demand and Supply

Elasticity

Efficiency and Equity

Government Actions in Markets

Global Markets in Action

Utility and Demand

Organizing Production

Output and Costs

Perfect Competition

Monopolistic Competition

Oligopoly

Public Choices, Public Goods, and Healthcare

Externalities

Markets for Factors of Production

Economic Inequality

Uncertainty and Information

Filters

Exam 13: Monopoly

Define price discrimination. What factors must be present in order for a monopolist to price discriminate? Why do firms price discriminate?

The Public Service Company of Colorado is a natural monopoly in the transmission and distribution of electric power. As such, it will incur an economic loss if it

-If an average cost pricing rule is imposed on the natural monopoly shown in the figure above, then the price will be

A marginal cost pricing rule for a natural monopoly sets

Under rate of return regulation, a regulated firm has an incentive to

A monopolist can make an economic profit in the long run because of

If a monopolist can perfectly price discriminate, then

-The figure above shows the demand curve (D) faced by Visual, Inc., a cable TV company, and the firm's marginal revenue (MR), marginal cost (MC), and average cost (LRAC) curves. If Visual is regulated according to an average cost pricing rule, there will be

-The area of economic profit shown in the above figure for the single-price monopolist is

There is no deadweight loss if the regulatory rule for a natural monopoly

-The figure above shows the demand and cost curves for a single-price monopoly. What price will the firm charge?

When comparing perfect competition to a single-price monopoly with the same costs

If a natural monopoly does NOT inflate its costs, the output it produces is the smallest when the monopoly is

Price discrimination, where different units of a good are sold for different prices

An industry in which economies of scale allow one firm to supply the entire market at the lowest possible cost is called a

Which of the following is a characteristic of monopoly in the long run?

The social interest theory of regulation suggests that the political process and regulations will ________ and the capture theory of regulation suggests that the political process and regulations will ________.

Which of the following is LEAST likely to be a monopoly?

Price cap regulation is a

What Is Economics

The Economic Problem

Demand and Supply

Elasticity

Efficiency and Equity

Government Actions in Markets

Global Markets in Action

Utility and Demand

Organizing Production

Output and Costs

Perfect Competition

Monopolistic Competition

Oligopoly

Public Choices, Public Goods, and Healthcare

Externalities

Markets for Factors of Production

Economic Inequality

Uncertainty and Information

Filters

The social interest theory of regulation suggests that the political process and regulations will and the capture theory of regulation suggests that the political process and regulations will .